Sunday, October 6, 2019 0 comments ++[ CLICK TO COMMENT ]++

Good interview with Louis Vincent Gave - 2019

Have always been a big fan of Louis Vincent  and ran across this good interview with theMarket.Ch (thanks to Jesse Felder for bringing this to my attention).

Below are some responses I found worth quoting. There is a lot more discussed and I recommend that you read the whole interview.

Q: What's ailing the automotive sector? 
Louis Vincent Gave: There are a number of structural issues, but the most significant development has been the realization that the Chinese car market is done growing. For years, the Chinese market has been growing by two to three million cars per year. Financial markets have just extrapolated this kind of growth into the future. But that turned out to be wrong. The Chinese car market has probably hit its limit at 25 to 30 million units per year. In most parts of the world, the auto sector has stopped growing. It’s no surprise then that Germany has seen such a collapse lately. 
...

You mentioned that in every bubble there is the belief that there will be another sucker who will buy the assets at a higher price. Who is that sucker today? 
Central banks. Bond investors think that the ECB, the Bank of Japan, now also the Fed again, will always step in and buy bonds. They don’t care if the yield on German Bunds is minus 50 or minus 200 basis points. The ECB will buy them.

And you think this belief will turn out to be wrong? That’s the big question: Will central banks continue to buy bonds regardless of what happens? And that brings us back to the subject of inflation. To me, this question is linked to energy. If energy prices stay where they are, central banks can continue with their crazy monetary policy. But if energy for whatever reason starts to shoot up, it will be much harder for central banks to say there is no inflation and therefore we can continue with our negative interest rate policy. 
...


How will that war be played out?  
Washington has decided to move the battle onto technology, because that’s one of the fields where the US has a competitive advantage. If this was really just a trade war, would the US government tell the semiconductor manufacturers not to sell to Huawei anymore? Of course not. If it was just a trade war, the Americans would want to sell more stuff to the Chinese. So, the battlefield of the new cold war is technology. The US government tells the American companies to divest from China. Meanwhile, China invests hundreds of billions of Dollars into building new tech competitors and into developing its own semiconductor industry.

What will this mean for tech stocks? 
This is massively bearish for the tech sector. You get government intervention on both sides, that undermines their entire business model. It strikes me as crazy that the large US tech stocks are still performing so well. The battle field for the new cold war will be technology, and yet, investors go and buy tech stocks. This is insane. That is like buying real estate in Alsace in July of 1914. You don’t want to own the battlefield. 
...

What’s a more intelligent portfolio? 
I would buy equities with an underweight in US, and I’d hedge them with energy stocks. Instead of buying bonds, I’d buy the likes of Total, BP and Royal Dutch Shell. They will give you the hedge in case energy prices go through the roof. Plus, they offer a decent dividend yield of 5 to 6 per cent. So, in a way, I see energy stocks as the new bonds.

How about gold? 
I’m not a gold bug at all. I never liked the idea of owning something that does not produce any cashflow. But we have to accept that the global rules have changed. In the past year, we moved to a world where central banks, which have been net sellers of gold for 25 years, have become net buyers of gold again. This is an important change. For 25 years, we had two marginal sellers of gold: central banks, and the gold miners. We have moved to a world where the only sellers of gold are the mining companies, and because of their dreadful stock market performance, they have not been able to invest much capital into the development of new mines. This is the kind of world where we can see a large upward move in gold like we saw this summer. And mind you, this was in an environment of a rising Dollar.

...

Which equity markets do you like? 
I’m fairly bullish on emerging markets for the coming year. Look at what’s happening there. India just cut its corporate tax rate from 30 to 22 per cent. Look at the tax cuts in China, the interest rate cuts in Russia, Indonesia, India, Brazil. Don’t forget, emerging markets are still the places where cutting taxes and interest rates has an effect. When interest rates in Europe go from minus 40 to minus 50 basis points, that does absolutely nothing to the economy. But if interest rates in India go from 7 to 5 per cent, that means more mortgage demand, that means more people borrow money to buy motorcycles, and so on. This has a big effect.

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Saturday, October 5, 2019 1 comments ++[ CLICK TO COMMENT ]++

Purchase: Ming Fai International Holdings (HK: 3828)

I will try to write up my evaluation when I get time but here are intial thoughts:

  • cheap stock in highly competitive market
  • micro cap
  • insiders and prominent investor ( David Webb) owns huge stake
  • no moat
  • vulnerable somewhat to US-China trade war (20% sales and 25% profit from USA, China slowdown)
  • good long term growth from China tourism growth
  • strong balance sheet
  • high dividend 

Purchase price (HK:3828): HK$0.81

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Purchase: Lion Rock Group (HK: 1127)

Not sure if timing is right--world economy slowing, China-US trade war likely to get worse, etc--but decided to take a position in two Hong Kong microcaps.

You can find low P/E stocks in HK and unlike Japan, where you can also find low valuation , capital allocation is better (many actually pay out dividends instead of sitting on cash) and try to grow (may Japanese companies are facing deflation and population shrinkage). However, fraud risk is higher is HK compared to Japan.

I will try to write up my evaluation when I get time but here are intial thoughts:

  • out of view micro cap
  • rolling up in big fragmented industry
  • insiders and reputable investor (David webb) own big stake
  • low tax (Bermuda and HK have no witholding tax)
  • competitive industry
  • no moat
  • low growth but potential for China growth if they decide to enter market
  • strong balance sheet
  • high dividend 

Purchase price (HK: 1127): HK$1.18

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Sunday, January 20, 2019 0 comments ++[ CLICK TO COMMENT ]++

Sold: Nevsun (NSU) -- takeover completed

Haven't had time to spend too much time on investing but I do keep up with news and research things here and there.

With the American market selloff in Q4 2018, I have been investigating several stocks. As usual in these corrections, the lower quality stocks have sold off more. I notice that leveraged businesses are somewhat cheap right now. As an example, a lot of John Malone's companies have sold off quite a bit (some of it due to company/industry  specific issues but market selloff amplified it). For example, Liberty Global (LBTYA, LBTYK) and Liberty Latin America (LILA, LILAK) have fallen a bit. They have lots of debt and the is concern over the future of the cable industry but they are getting cheap.

In the meantime, in early January, the Nevsun (NSU) takover was completed (on Jan 4). Took a bit longer than forecast bute overall, satisfied with how things turned out.

Price Sold: $6.00
Total Return: 4.88% (annualized (estimate): 23%--not meaningful)

With a small portfolio these small returns would not be worth it but with a moderate portfolio, it can be ok.

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Monday, November 19, 2018 2 comments ++[ CLICK TO COMMENT ]++

Real Vision's Stanley Druckenmiller interview (2018)

Thanks to Liberty for pointing me to this excellent interview with hedge fund superinvestor Stanley Druckenmiller, conducted by Real Vision. Druckenmiller is a macro investor so anyone who is macro- oriented should definitely check it out.

As he makes clear in the interview, he made most of his money in interest rates and currencies and doesn't do much equity investing, so small investors like me who are focused on stocks won't find much practical insights. Nevertheless, you can glean some thoughts about global macro issues. Of note, the interview covers loose money policy over the last decade and potential trade war with China. In my opinion, these two are the most important issues, not just in the immediate future but also over the next 25 years.

Druckenmiller also gives the most important investing lesson he learned: one should always know whether they are on a hot streak (doing well) or if they are on a cold streak (bad). You should realize what streak you are on and act appropriately. Don't be like a gambler who, on a losing streak, bets everything in order to make it back.




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Tuesday, October 23, 2018 3 comments ++[ CLICK TO COMMENT ]++

Purchase: WesternOne (TSX: WEQ)

WesternOne (TSX: WEQ) is being liquidated and it seems like an attractive investment so I took a position in it. I came across the idea from Sculpin at Corner of Berkshire and Fairfax (thanks).

You can read the official press release but basically they are winding up operations and expect to pay out $2.20 to $2.43. It will be adjusted up or down by working capital but hopefully no negative surprises emerge. Initial distribution in Q1 2019 with another one upon liquidation.

A shareholder vote is required but about 38% is held by insiders who approve the deal. So I think risk is low.

The return is going to be driven by how much is paid out early. I'm hoping most of it will be paid out by end of Q1 2019.

Purchase price (TSX: WEQ): $2.10

Return Expectation

Liquidation price (conservative, low): $2.20
Return: 4.8%


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