Articles for a Monday

Some articles one may find interesting...


  • Ever wonder how the closure of a factory impacts individuals and other businesses? (Toronto Star): An illuminating and depressing summary of the impact of an Owens-Illinois factory closing on various suppliers, employees, and other businesses.
  • China slows US Treasury purchase (New York Times): Not as big of a deal as some US$ bears would have you believe. Nevertheless, investors should prepare for the scenario when China funds less of the US debt.
  • HSBC may sell HQ building and several others (New York Times): Desperate times call for desperate measures--although some banks still haven't cut their dividends. HSBC is asking $3.96 billion for 3 trophy properties. An unfortunate time to sell financial towers in the middle of a financial bust.
  • Danger with DCF (James Montier for Societe General; original post at Simoleon Sense last year): Late last year, Simoleon Sense posted a report by James Montier, that identifies the pitfalls of using DCF (discounted cash flow). I'm linking this because many readers likely use it. I personally don't rely on DCF because it is very sensitive to growth rate and cash flow assumptions, and I have little confidence in my ability to pick good forward-looking numbers. These days, I rely on a simplistic normalized p/e ratio to determine if a company is attractive. I have to say that I don't know what I'm doing, and given my stockpicking of late, I don't recommend that you follow it either...
  • Profile of James Montier (Fast Company): I have recently started getting interested in the writings of James Montier. For those not familiar, Montier is a strategist who approaches investing primarily from a psychological point of view. I haven't read any of his books yet but have put them on my list. This 2007 article from Fast Company profiles Montier and presents some of his suggestions.
  • Distressed Debt Investing (a blog): This isn't an article but a whole blog. I recently came across this blog and some professional who works in the industry has written up the workings of distressed investing. Some of it too technical and impractical for me but still useful.
  • Warren Buffett's electric car investment in BYD (Fortune; original citation by Infectious Greed): Interesting article on Buffett's investment in BYD, a chinese battery producer that is trying to manufacture an electric car. Warren Buffett seems to be drifting--to use short-seller Doug Kass' past comment--into areas that seem foreign to him; either that or he is on to something. It seems like pure growth investing and I'm just wondering how anyone can know if BYD will succeed. Either BYD is some hidden secret no one knows of, or its car is mostly hype, given how Toyota, Honda, and GM still seem nowhere near production. I also have a feeling that BYD's competitive advantage of cheap, mass, labour will be a hinderence in the future. Labour costs are bound to rise. Productivity is also likely to be lower than robots (although it doesn't seem to be the case right now.) I can see how electric utilities will be one of the main beneficiaries of electric cars, but apart from that, this looks quite speculative. Then again, I thought Buffett's investment in PetroChina was also speculative and that turned out well for him.

Comments

  1. SivaramApril 14, 2009 at 10:11 AM

    I don't know what price Buffett paid but if we go with your numbers, I think 13x earnings is very expensive if you assume this is a cyclical and not a growth stock (unless those earnings are depressed.)
     
    Ignoring the electric car potential, this company should be valued as a cyclical. It produces parts for mobile phones but that is probably close to a commodity business (even if it has an advantage right now, the industry will probably be commoditized, if it already isn't.) Even if it dominates certain fields, if the industry is a commodity-type business, profitability will be low.
     
    So my impression is that he is betting on the electric car potential. Or perhaps more accurately the electric battery potential. As David Sokol says, even if the electric car goes nowhere, BYD can sell the batteries to other car manufacturers.
     
    Buffett, as the article points out, is also likely investing based on the character of the owner. He reminds me of many people Buffett has praised in the past: hard working, workaholic, smart, and not greedy.
     
     
    In any case, this is definitely the most interesting by Buffett in a long time. It remains to be seen if the Chinese govt will block this (probably not)...

    ReplyDelete
  2. SivaramApril 14, 2009 at 10:19 AM

    Actually I take back some of what I said... this may not be expensive... if Yahoo Finance numbers are correct, the stock of BYD had collapsed from HK$15 down to HK$3... It seems to have zero long-term debt... and is slightly below book value (0.98x)...  but I need to double-check these numbers...
     
    It's actually not bad...

    ReplyDelete
  3. Amit.dApril 15, 2009 at 5:53 PM

    Thanks for posting these links, I truly appreciate it!  I'm glad I stumbled across your website.
     
    Good work!

    ReplyDelete
  4. SivaramApril 15, 2009 at 8:00 PM

    Thanks for the thumbs up... I'm just a newbie and some of my suggestions are high risk so watch out :)

    ReplyDelete
  5. Amit.dApril 16, 2009 at 4:14 PM

    Sivaram, thanks for the headsup but dont worry!
     
    Your entitled to your opinions, and they are not wrong because they "do not occur" in the future as we all realize Investing is very much an ART.
     
    But I truly believe, that every investor can benefit from insights and opinions of other TRULY INTERESTING and PASSIONATE fellows such as yourself.
     
     
    You'll be seeing alot of me sir, I'll see you on Fwallstreet as well my friend.
     
    Keep up the GREAT BLOG

    ReplyDelete

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