Articles for the week ending September 19th of 2009

Was busy with my movies at TIFF*, thinking about my future, and starting my job hunting. Hope no one minded the infrequent posts this week...

(* Non-investing thought: Of the 7 films I saw (still one more left,) none of them really blew me away. I think the best one that will appeal to mainstream fans is The Road, directed by John Hillcoat, and starring a young Kodi Smit-McPhee and Viggo Mortensen. It should open in theatres soon so keep an eye on that. If you are into pure science-fiction or drama, you may enjoy it (it's not an action film.). Cinematography, set design, and special effects were excellent, while the acting was superb too. The film deals with a post-apocalyptic world where a man and his young son are trying to survive. It's based on a book and, as usual, people who read the book may not find the film as enriching (I don't read novels so I can't say about this film.) Unlike post-apocalyptic worlds in movies like Mad Max or video games like Fallout, this one was extremely interesting to me. The neat thing about the setting in this film is that food is extremely scarce. It's so bad that cannibalism is a real threat. I found the film touching on some aspects of the worst of humanity and it is illuminating to realize what we are as humans. Oh yeah, got to shake hands with John Hillcoat, and I congrtulated on his film... for those into indie films, I thought the provocative She, A Chinese by Xiaolu Guo was pretty powerful...and sad. It's hard to explain the plot without revealing important details but it's basically the story of a Chinese girl trying escape from her meaningless life. The director showed up for the screening and what she said about the film being universal and applying to almost anyone is true. Youth all over the world face similar situations and the dice doesn't roll your way sometimes. Sadly, all these Chinese films are banned in China but I'm hopeful that the Chinese government sees the errors of its way and relaxes their censorship within a decade.)

Moving back into the investing world, here are some articles you may find interesting... as usual, not in any order and covering a broad spectrum...

  • One hedge fund manager's thoughts on concentrated holdings (Tim du Toit of EuroShareLab; via GuruFocus): Interesting thoughts on sizing of your portfolio holdings if you are a concentrated investor.

  • Death of brands exaggerated? (The Globe & Mail): One of the topics many, including me, have wondered lately was whether the value of brands have started a long decline. This article, referencing the BusinessWeek-Interbrand global brand rankings (click here for rankings; here for BusinessWeek story), suggests that brands are largely maintaining their value. It's always difficult to discern how much of the value of a firm comes from the brand but it is critical for investors since brands are arguably the strongest provider of moats. My opinion is that it is easier to lose advantages from superior technology, better management, better distribution systems, lower costs, and the like, than it is to lose the advantage of an established brand. However, everything is inter-dependent initially, with, say, technological advantage leading to the build-up of brand equity. The brand rankings haven't changed much since Interbrand started doing the rankings back in 2001 and this shows how difficult it is overtake some of these brands. The top 5, in order, are Coca-Cola, IBM, Microsoft, GE, and Nokia. Some value investors consider technology companies as having unpredictable moats but in terms of their brand value, technology companies can be almost as good. For instance, it would not surprise me if the shareholder wealth generated for shareholders over the next 50 years by Microsoft is greater than that of Coca-Cola (assuming you do not buy either company when it is wildly over-valued.)

  • While on the topic of brands... LVMH is doing well (Economist): Even if one is concerned about consumers trading down, elite luxury brands should do well. I remember seeing ads for luxury goods from the Great Depression so the super-wealthy will still be able to afford the super-high-end goods. Luxury brands also have more of a global focus so they are not generally vulnerable to weakness in one region. Such is the case with Louis Vuitton Moet Hennessey. Although near-term risks are likely all priced in, I think the longer-term risk of any potential decline will be in the mid-market or mid-upscale segment. For instance, without knowing many of the details, I would be more comfortable buying shares in LVMH than Coach. I also find it interesting that LVMH is doing well in China even though it is notorious for fake goods. Perhaps other Western firms can consider how LVMH operates with counterfeit goods all around.

  • The Globe & Mail interview with Nassim Nicholas Taleb (The Globe & Mail): I'm not a fan of Nassim Taleb but many readers are. If you haven't checked out this interview already, do read it. Although kind of funny I think his parting advice is pretty good: "Also, it's good to have more than one profession, in case your own profession goes out of style. A Wall Street trader who's also a belly dancer will do a lot better than a trader who winds up driving a taxi."

  • Latvia slowly recovering (BusinessWeek): Painful adjustment but hopefully the Baltics will get out from this safely. The last thing the world needs is another country ending up as a failed ex-Soviet state and ending up under Russian control.

  • (Recommended) Searching for special situations and other investment ideas (Old School Value): Jae Jun runs down some techniques for searching of investment ideas.

  • Ships, ships, and more useless ships (Daily Mail; h/t Naked Capitalism): Amazing story with nice photographs of idle ships. I wonder what will happen to the shipbuilding industry, particularly in South Korea. If world economy does not recover strongly, we may see the whole industry devasted. Having said this, we should always be careful about stories like these. One, it may be painting the picture of the past. Two, as one of the commentators are the bottom of the article says, he/she saw a similar environment in the late 80's/early 90's in Singapore. Maybe all these idling ships look ominous but it is always possible that the industry can adjust without a total catastrophe. The final outcome is uncertain. The Baltic Dry Index supposedly hit a post-May, 4 month, low today. Oil tankers are probably doing ok but if oil falls, watch out. (As a side note, indicators like the Baltic Dry Index, or commodities in general, are very important because they track real prices in the economy. The BDI is exactly what people are paying to ship dry goods so it touches the real economy. In contrast, changes to financial instrument prices may or may not mean much. Someone may bid up the price of a share or bond because they are willing to accept lower returns, and this may not necessarily reflect a similar change in the economy.)

  • (Recommended) American banking wars: Sandy Weill vs Jamie Dimon Part 1 & Part 2 (Excerpt from Duff McDonald's Last Man Standing; via Fortune): Fortune excerpts Duff McDonald's upcoming book on Jamie Dimon, Last Man Standing. Suffice to say, I don't think I'll ever be a CEO, let alone one in a bank. These guys are cut from a different cloth for sure. I'm always amazed how arrogant and selfish many executives are—bankers and lawyers always look the "worst" to me; I rarely see such arrogant executives in other industries. This book is likely biased in favour of Jamie Dimon and I don't know Dimon's background well, but I consider him as one of the "good guys", at least so far. I have always been impressed with him ever since I saw his Charlie Rose interview (part 1 & part 2; If you haven't seen it, I highly recommended the Dimon interview to anyone interested in management, banking, or leadership.) As long as JP Morgan sits on a trillion in (notional) derivatives, I won't consider Dimon to be the best banking executive. But if JP Morgan survives through all this, Jamie Dimon has to be considered as the top banker in America. The only other widely known person (at least to me) that even comes close is Richard Kovacevich of Wells Fargo (but Wells Fargo has its own problems and is sitting on its own timebombs with scary-looking labels such as Alt-A, 'Liar Loan', CMBS, and so on.) (For what it's worth, Kovacevich is a hardcore Republican while Dimon is a typical Democrat so you know which guy I want to see come out on top ;)

  • Film dealmaking at TIFF (The Star): A look behind the scenes of producers trying to sell their films to studios at the Toronto International Film Festival.


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