Showing posts from November, 2016

Opinion: Potential Consequences of Trump Presidency

Given the unpredictable nature of Donald Trump and the lack of a well-articulated platform and ideology that he adheres to, it has become a cottage industry to predict how the US government over the next several years--at least until mid-term elections in 2 years--will behave. I don't like Donald Trump, his policies or the people he surrounds himself with--Steve Bannon, the ex-Goldman Sachs banker/ex-film producer and almost-far-right proponent, and Bill Walton, the former Allied Capital CEO who some of you may recall being profiled by David Einhorn over a decade ago with some employees eventually being convicted of fraud come to mind (it's almost farcical that Trump would put Walton in a role to influence the policies of the SEC and SBA when those two agencies contributed to the conviction of wrongdoing by Walton's firms)--but as I have mentioned in the past, unlike most other countries, the US President has far less power than many imagine. Having said that, since  the R

Sunday Spectacle CCII

Interesting Facts about the US Currency I ran across a good Dallas Federal Reserve publication (" Money " from 2013) that explained the basics of money. It is one of those government propaganda-type publications aimed at the general population but, surprisingly, it does a good job of going over almost all the major concepts related to money including inflation, expansion of the money supply due to multiplier effect of reserve banking, and even highlights the major events (such as Bretton Woods, FDR banning ownership of gold, etc). Anyway, it had some interesting historical facts that very few, including Americans, know about the US currency and I thought I would post it here. I certainly didn't know about them. For instance, I knew about the era when banks issued their currencies but didn't know there were 30,000(!) distinct currencies in USA at one point. This implies that there were maybe 20,000 banks (another 10k could be other entities) and that surprises me

Articles of Interest for the week ending Nov 26 2016

Here are some articles I read recently that you may find interesting. This time around, very few are investing-related... " Google, Facebook, and Microsoft Are Remaking Themselves Around AI " (Cade Metz for Wired): Overview of how these tech companies are leading the research into AI. " Inside Fitbit’s Quest to Make Fitness Trackers Invisible " (David Pierce for Wired): I was thinking about wearables as a potential investment. In particular, Fitbit (FIT) has sold off since the IPO--it's kind of confusing since it seems like there was a big share dilution along the way--but is this a fad or is it the future? Fitbit certainly has the leadership position and strong brand (so far) and its balance sheet and income statement looks ok too. I probably won't invest since history is too short and it's hard to predict the future but I'm studying it a bit. " Can America’s Companies Survive America’s Most Aggressive Investors? " (Alana Semuels for T

Newbie Thought: What Type of Investment Edge Do You Have?

I was listening to this Manual of Ideas podcast with James Roumell and he briefly mentioned the three  types of edge investors could have and I thought it was worth thinking about. The three of them are: Information edge Analytical edge Behavioural edge There are many different ways of slicing and dicing the idea of investment advantages that are required but these three do a good job IMO. This is a very simple thing but it is always worth thinking and periodically reminding oneself about basic concepts in investing. Information Edge Information edge is when you have knowledge that most others--say the market as a whole--doesn't possess. Some people do it through illegal means but we are talking about fully legal activities here. It sounds like James Roumell believes this may his edge. Those with large budgets may get an edge by sourcing information that is not easily accessible to others, either due to cost or exclusivity (for example, getting very detailed mar

Bloomberg Markets on Renaissance Technologies

Arguably the most successful hedge fund of all time is Renaissance Technologies' Medallion fund. I don't know much about hedge funds and don't have visibility into any of them, and furthermore, Renaissance is very secretive, so I'm just going by what others say. Since many people keep saying the same thing, I suspect Renaissance is indeed as good as it is. Bloomberg Markets has a very good article on Renaissance Technologies, " Inside a Moneymaking Machine Like No Other ." Given how the fund is secretive, there isn't much that is known but Katherine Burton, the primary author, does a good job with whatever is available. Even if you are not a quantitative investor, well worth a read for a markets history perspective. Medallion is a quant fund and Renaissance employs numerous, highly educated and highly skilled, mathematicians and scientists. The founder of Medallion, Jim Simons, is a former mathematics professor. Medallion's record is truly remark

Sunday Spectacle CCI

Global Agriculture Some important agricultural graphics I extracted from Syngenta's " Our Industry 2016 " report ( PDF direct link )... (As with most graphics posted on this blog, you can click on the image for a larger one) (Image source: Syngenta, " Our Industry 2016 "; PDF direct link )

Articles of Interest for the week ending November 19, 2016

Since getting back into investing, here are some articles I found interesting/worthwhile. Since I'm catching up, some are really old so you may have seen them already (if it is stock ideas or macro themes, pay attention to date it was written). Hope you find them useful. I'm also trying to rebuild my blog and website list. Quite a number of blogs I used to read are gone or don't really cover what I find useful. If anyone has blogs that are worth following (especially anything new started in the last 3 or 4 years), let me know (email me or leave a comment at the bottom). (Recommended) " Should You Buy Net-Nets or 'Desert Island' Stocks? " (Geoff Gannon for GuruFocus ): Good to see Geoff Gannon writing articles again. I probably learn more from Gannon than anyone else on the Internet. Lately, I have been reading through his past articles at GuruFocus and there is always a nugget I pick up from each one. The linked article is one that touches on the in

Jeremy Grantham 3Q 2016 Letter: Not a Classic Bubble

I'm getting back into investing and one of my favourite big-picture thinkers is Jeremy Grantham of GMO. One of the things that makes this blog not much of a value investing blog--I don't necessarily consider myself a true value investor--is my incorporation of macro thinking. Grantham's latest 3Q 2016 letter is out and he devotes it to the high market valuation, which in my opinion is a bubble. He essentially suggests that valuations are high and will mean-revert, but doesn't think it will happen quickly as in most large bubbles. He thinks the most probable outcome is a drawn-out mean reversion. I don't necessarily agree with Grantham on everything--for instance, I'm still not sold on his recent bullish call on (some) commodities and his thought that oil will hit $100 again (within a reasonable time period)--but he is an expert on bubbles and is one of the few that was bearish on the 2000 and 2008 bubbles (apparently also the 1989 Japanese bubble too but I wa

Talk about Short-covering Rally -- Shippers Rise 500%+

Some shipping companies had one of the biggest short-covering rallies in recent memory when they rose 500% or more within a few days. (source: Yahoo! Finance , downloaded November 16 2016) I came across this unusual outcome after reading the story at Marketwatch . There are always some crazy short-covering rallies but I haven't seen, nor heard of, such huge moves across multiple stocks. DryShips had a recent reverse stock split and not sure if that threw off some quantitative fund or something. The stocks above are for DryShips (DRYS) and Globus Maritime (GLBS). These are shipping companies and long-time readers may recall how I have touched at the extreme volatility of DryShips and dry bulk index, and even wondered several years ago if DRYS was an investment opportunity. The whole industry is distressed and facing some catastrophic problems. I have been looking lately at Navigator Gas (NVGS) and Seacor (CKH) but the issue is the massive overcapacity. For instance, Navigat

Berkshire Hathaway Bets on US Airlines

Berkshire Hathaway just disclosed that it took stakes in major US airlines . Pretty sure it is not Warren Buffett, rather his co-CIOs, making these investments. Buffett joked that he wouldn't invest in airlines after his disastrous--disaster for him is exiting with a small gain ;)--bet on US Airways in the 90's and, although he can always change his mind, I doubt he did. Also, Buffett usually makes concentrated bets and this isn't one. What is interesting to me is that they seem to be making a sector or macro bet since they took stakes in multiple airlines--either that, or they are trying to obscure their true intention (the stock they want to own) but buying multiple ones. It was only yesterday when I was commenting on Mohnish Pabri and his investment in Southwest Airlines (LUV). I wondered if the airline industry has changed from its money-losing ways. I wonder if the Berkshire investment managers are thinking the same thing. In an interview with CNBC Buffett confirmed

Mohnish Pabri Peking University Speech (Oct 2016)

I ran across this after someone on Twitter mentioned that Mohnish Pabri, a successful value investor, started a blog and has posted a few videos of his speeches. I'm not huge fan of Pabri--his style is a bit different from what I want to be and his holdings always seem very risky if you don't know what his reasons are (which is never clear to most amateur investors)--yet it is worth listening what he has to say. Pabri often raises some items often ignored by many and he is very open and speaks his mind. Mohnish Pabri, in my opinion, is a deep-value investor who focuses on cyclicals. Not everything he does fits that description but I do notice the unique thing about him is his tendency to invest in cyclical companies. As experienced investors, or at least those that have studied history, know, sometimes it is very hard to tell if some company is facing structural decline or a cyclical decline. This strategy has the potential for huge losses if you end up stuck in a structura

Sunday Spectacle CC

2016 US Elections America just held its 58th presidential election, which also coincides with the House and partial Senate and some State Governor elections. Although many were surprised by the results, it wasn't a huge surprise to me. Going into the election, polls consistently showed Hilary Clinton with a slim 3%-4% lead over Donald Trump. Clinton had a bigger 10%+ lead but it fell precipitously after the surprise big-news-turned-into-no-news FBI "bombshell" a week before the election (this clearly deflated a lot of Democrats and independents that were going to vote for Hilary). The fact that Hilary Clinton was already viewed negatively by many neutrals (for the corruption and Libya war and so on) didn't help matters. Results seem to suggest that Hilary's loss was due to supporters not turning up, rather than Trump attracting more. In the end, Clinton ends up with a majority of the votes by a slim margin (mostly due to high votes in populous states like Cal

Warren Buffett on the Wells Fargo Fake Account Scandal

Most of you have probably heard of the scandal engulfing American banking giant, Wells Fargo (WFC). It appears the bank created millions of fake bank accounts under its customers' names. The truth, as always, is never clear but the bank says employees did it under their own will to meet employment goals. Several US government agencies are investigating and the CEO stepped down recently. Berkshire Hathaway is the biggest shareholder of Wells Fargo (WFC) with about 10% ownership and Buffett personally owns another 2 million shares (worth approx. $100 million right now). But Buffett has not commented about the scandal, until now. In a CNN Money interview , Buffett says he still has faith in the bank and couldn't comment publicly until now because it was a passive investment as stipulated to the banking regulators. Buffett essentially says senior management made a terrible judgement with the incentive system. It remains to be seen if this is a symptom of the current cultur

Bloomberg's David Rubenstein Warren Buffett Interviews (plus Classic Buffett Videos)

Looks like Bloomberg has a new show hosted by David Rubenstein (founder of private equity powerhouse, Carlyle). He recently interviewed Warren Buffett and it is available online  ( alt link ). It is more of a quick overview and those not familiar with him might learn a few things, but there isn't much new for Buffett fans. But, as always, you always pick up on things that you may not be familiar so it might be worth checking out. I don't follow Buffett as closely as many others and I don't follow Berkshire Hathaway at all so I always learn something new, even if seemingly minor. For instance, I always wondered why Washington Post shares fell so much in 1974 and it looks like it was due to government threatening to shut down a few of their key assets (TV stations in Florida). I had thought the shares fell just because of the brutal bear market in 1974 but that alone doesn't explain it. I also didn't know Washington Post IPOed a few years earlier. (on a political no

Purchase: Motors Liquidation GUC Trust (MTLQU)

This was a mistake. Total newbie mistake. If you are a small investor and/or located outside USA, you have to be really careful with commissions and order fills. The investment is also not very straightforward with all sorts of possible outcomes. The investment is Motors Liquidation GUC Trust units (PinkSheets: MTLQU). This is a tricky investment and I was going to write it up more but because the investment didn't work out--I'll probably break-even or incur a loss for unfortunate reasons--so I'm not going to write much (I don't really have much of a position and don't intend to increase it). You have to do your homework. Motors Liquidation GUC Trust handles the payments to creditors and other claimants related to the bankruptcy of General Motors (GM). As some of you may know, this is one of the largest bankruptcies in American history ( you can read my old opinion on it here ) and there were lots of controversies. The company went bankrupt in 2009 but the bankr

Sold: Ingram Micro (IM)

Similar to the reasoning for selling Lexmark, I sold Ingram Micro (IM) after the stock market rallied strongly and the merger arbitrage gap closed significantly over the last week. Three reasons drove the closure of the gap: (i) markets rallying strongly, (ii) Ingram Micro posting strong earnings, and (iii) CFIUS granting approval. Return isn't high but I'm ok with it given its short time period and uncorrelated return. Purchase Price: US$35.87 Sale Price: US$38.55 Total Return: 7.4% (annualized: 782% -- meaningless, short holding period) Good luck to Ingram Micro employees and hopefully the merger will benefit all parties.

Sold: Lexmark (LXK)

With markets rallying strongly and the merger spread narrowing considerably, I decided to exit my Lexmark (LXK) risk arbitrage position. If I had waited for full closure, I could have earned 1% more with little risk. This was my first purchase in 6 years :( and am very satisfied with the return. The key reason for the merger gap was due to uncertainty over CFIUS approval, which eventually happened. Most of the gap closed after the approval was announced. Purchase Price: US$36.03 Sale Price: US$40.12 Total Return: 11.3% (annualized: 134% -- meaningless, short holding period) Once the merger is consummated, this will end Lexmark as an independent entity. Interestingly, in a similar path to Lenovo, a former subsidiary of IBM ends up in Chinese hands. It is a sign of the growth of the Chinese economy and the rise in prominence of Chinese companies on the world stage. (Having said that, I still maintain my bearish view of China and think it is in a major bubble which is only expe

Sunday Spectacle CXCIX

Celebrity Earnings for Social Media Sponsored Posts "HAVING just received a fancy new watch from TAG Heuer, Cristiano Ronaldo, a footballer, posts a photo of himself , wrist aloft, to his Instagram account. He dutifully thanks them for their “kind gift” and signs off the post with the company’s advertising slogan #dontcrackunderpressure." -- The Economist (source: " Celebrities’ endorsement earnings on social media ," The Economist, Oct 17 2016)

Bloomberg Businessweek's Top 85 Disruptive Ideas in the Last 85 Years

Some of you may have seen this already so it's a bit old but I just ran across it and found it interesting. It may have been at the end of 2014, but whenever it was, for its 85th anniversary, Bloomberg Businessweek published its top 85 disruptive ideas . Note that this is just the top ideas over the life of the magazine (i.e. last 85 years) so it isn't a list of  the best ideas of all time. Furthermore, the magazine, and hence the list, is US-centric so many ideas that had a bigger impact on the world are missing. Businessweek was also famous for being a business magazine that was more focused on cultural issues, science and technology, and various other topics usually not covered in serious business magazines. There is also lots of recency bias--I wouldn't list Google,, and Al Qaeda so high up on the list. It's also debatable how some items that may have profound impact in the future but haven't produced any major impact presently should be rated (a go

Purchase (Special Situation): Virgin America Takeover

I need to diversify my risk arbitrage positions and took a new position. Unfortunately the returns are low and nowhere near by 10% or so target, but the deal is supposed to close within a few months so I think it's ok. Alaska Airlines, a Seattle-based discount airline, has offered to purchase another discount airline that was just IPOed a couple of years ago: Virgin America (VA). My opinion is that the probability of success is very high so it seems worth doing it. However, one analyst mentioned the takeover price might be lowered if major divestitures are required in order to satisfy the government so that is something you should be seriously consider if you take a position. If that analyst is correct, it is possible to lose money on this (at current prices) even if the deal closes successfully. This Bloomberg article is quite good in summarizing the current state of affairs. As usual, if you are interested, you should read the relevant documents filed by both parties (they h

Quick Thoughts on Amazon

I haven't been following the markets, nor investing for about 3 or 4 years, and it is interesting to see how things have changed. Not sure if any long-time readers are still around but some may remember that my favourite company (from a business perspective) was Amazon (AMZN). It was always seemingly too expensive so I never invested in it but if the valuation was lower--say during a stock market crash--I would have no problem investing a large sum for a long time (big risk with Amazon is management risk--loss of Jeff Bezos would be a big negative). Amazon changes more than most other companies of its size so there has been quite a few changes over the last 5 years or so. First, the Kindle (or tablet in general) does not appear as lucrative or revolutionary as many investors, including me, imagined. I always thought Kindle had too much hype but I thought tablets as a category finally reached the stage where they could be used as a reading device. Obviously this didn't happen