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 investing approaches small investors can pursue. Gannon basically touches on what I call classic value investing (net-nets, companies trading below liquidation value, focus on assets, etc) vs event-driven (risk arbitrage, liquidations, spinoffs, etc) vs Buffet Prime (buy & hold forever, great businesses, strong moat, high ROE, etc). I share Gannon's views that event-driven type investing and Buffett Prime type are probably the best ones to pursue in USA (and Canada). In other countries, the situation may be a bit different (in developing countries, maybe you'll find higher quality net-nets but no special situations since corporate restructuring is limited). My personal opinion is that, just like anything else in life, there isn't one path to take. Many roads lead to success and you need to find the one that works for you. Too many people attempt to clone Warren Buffett without realizing the amount of skill or effort required. That's like people trying to be Michael Jordan or Wayne Gretzky without having the talent; better to figure out and focus on your strengths instead (more in the next bullet, article from Howard Marks). Also, the vast majority of investors will fail and won't beat the market--maybe even me. If you don't have an interest in investing, and aren't performing well (in the medium to long-term), you may want to focus on other things in life. If you like doing it, that's fine but otherwise, one needs to realize their limitations.
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• (Highly Recommended) "It's not Easy" (Howard Marks, Oaktree Capital, Sept 9 2015): I might write a standalone post on this in the future but in any case, this is a great piece from Howard Marks on how investing actually requires a lot of work and thinking. He quotes Charlie Munger as saying "It's not supposed to be easy. Anyone who finds it easy is stupid." Newbies who haven't read this should definitely read it.
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• (Recommended) "You can't Eat IRR" (Howard Marks, Oaktree Capital, July 12 2006): I used to use personal finance software (MS Money and Quicken) to track my portfolio but am down to computing everything by hand in a spreadsheet. So, I was revisiting this classic piece on how to measure returns properly. Some of it is not applicable to small investors but it is good to set up a system so that you understand how annualized returns can differ from IRR and how opportunity cost of not deploying capital (holding cash) should be factored in.
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• "Measuring the Moat - Credit Suisse" (Credit Suisse, h/t Hurricane Capital): Ran across this new blog, Hurricane Capital, that is quite good (the author transcribes some key points from videos he links to so his blog so that's something different and takes effort). The author cited the updated Credit Suisse report on moats. I read the old one (some of it at least) from years ago and it is quite good. If you want to read about moats that is not a book, it worth spending your time on this. The thing about moats, though, is that it is easy to identify in hindsight but hard when the business is building it. Also, even if you identify one, you might be looking at its peak and it can disintegrate; many value investors don't seem to pay attention to that.
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• Ritholtz Bill Miller interview (Bloomberg audio podcast): I am probably one of the few who still believes in Bill Miller. Many wrote him off him off after the financial crisis as someone lucky and unskilled, but I still think he is one of the best investors in the last few decades (especially for the size of the fund he was running). I haven't capitalized on anything yet but he definitely changed the way I think about growth stocks. I think he is prone to blow-ups given the type of investor he is (a bit speculative, kind of like Mohnish Pabri) and don't necessarily agree with Miller on everything, but you can't deny that he brings a different perspective on many issues. For instance, I don't share his view in the interview that stocks are cheap--he, like most institutional investors, are comparing it to bonds--but he is probably right that bond yields may have peaked (apparently global bonds hit a 5000 year peak in the summer). His bullish view of Amazon is also hard to accept--he seems to rely more on the Silicon Valley approach of looking at addressable market, which is extremely large for Amazon (relatively speaking, Amazon is barely where Walmart was in the early 90's), rather than on current and future "probable" earnings. He does make a strong point that Amazon is one of the few companies with $100 billion in revenue that is able to grow it 20%+, a truly remarkable feat for sure.
• "Bob Diamond's Misadventures in Africa" (Bloomberg, Oct 11 2016): Profile of former Barclays CEO (who stepped down after LIBOR interest-rate manipulation scandal--not clear but I don't think he is ethically challenged) who is running a new fund/holding company, Atlas Mara (trades in London, LSE: ATMA). I find his company interesting because it gives investors an opportunity to invest in Africa. Not only that, his fund is exposed to frontier African markets rather than the popular, more developed, South Africa or Kenya. Africa is the least developed region, which consequently means it has the highest growth potential. It is also one of the most corrupt--only parts of South Asia and Central Asia are more corrupt in my opinion--and filled with quasi-dictatorships (many are run by democratically-elected-dictators). So if someone is interested in frontier markets and wants super-high-risk/very-high-return potential, this is the place to look. When an economic growth is good, one of the absolute-best sectors to invest is financial services (especially banks and stock exchanges in undeveloped/developing markets). Atlas Mara is a holding company with stakes in several banks and is trying to consolidate them into larger, more efficient, operations. The stock is down something like 80% since IPO because their banks are doing terribly. The commodity bust has negatively impacted many of those countries and loan losses are high. Some of their investments were likely duds and they might have spent millions on worthless banks. Assets are likely overstated and probably worth less than what's on the books. Management skill is also unclear, although Bob Diamond built up Barclay's Africa operations over the decades so he knows the region (he is also apparently good with forex which is where Atlas Mara is making money right now). What makes this worth looking at is the fact that Price to Book is something like 0.4 (I haven't looked deeply and confirmed it). Assets are likely overstated and asset quality is likely poor but even then, after adjustments, if P/B is less than 0.6, it is worth investigating given the long-term secular banking growth (if you are ok with high-risk investments). There is a risk that management may destroy shareholder wealth by raising funds by issuing shares way below book value but hopefully they don't. Unfortunately, I don't really understand financials--outside my circle of competence--so any investment will be more speculative than anything.
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• Syngenta 2016 Industry Report (PDF; alt website link): Was studying the agricultural industry and found this industry report useful (it's similar to the ExxonMobil oil & gas industry report, which is one of my favourites in the energy sector). Things have changed so much in agrichemicals/agribiotech industry in just 5 years. I invested in Syngenta (SYT) as a risk arbitrage position and it has sold off significantly recently (possibly due to increased deal failure risk from the election of Trump and his impact on European regulatory agencies; if Trump blocks the Monsanto merger or severely penalizes Chinese companies, then maybe the EU will block the Syngenta buyout). Anyway, I was wondering if I should raise the stake (you are looking at something like upside of 20% and downside of 30%, depending on stock price). Deal might fail so not sure if it's worth it. I always liked the company and was looking at it more deeply as a potential long-term investment (I would have no problem holding this company long-term). The problem I see is that the industry did really well in the 2000's but has gone nowhere in the last 5 years.
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• "Can Monsanto Save the Planet?" (Fortune): I also was researching Monsanto (MON), which is a competitor to Syngenta (although Monsanto deals more with seeds and Syngenta with crop protection chemicals). I'm thinking the stock may be worth investing if the merger fails and stock falls 25%+ from here. Monsanto has been one of the most hated companies in America in the last 50 years. Some of it for very valid reasons: Monsanto has been in some of the most serious health controversies in American history. It was a major producer of harmful chemicals such as DDT, PCB, and Agent Orange. That was the past. Recently, over the last two decades, it has been controversial due to its main business, genetically-modified-organism (GMO) products. Namely, Monsanto invented and pioneered genetically-modified seeds. It is also controversial for enforcing patents and going after farmers that violate its GMO seed policies. Presently many countries, particularly in Europe, are very concerned and resistant to GMO food. The impact of GMO foods will not be known until decades afterwards but GMO foods are one of the most regulated and scrutinized products so I am somewhat less concerned than others. Everyone has a moral compass and you need to decide if you want to invest in such a company. For instance, I don't invest in weapons manufacturers (so-called Aerospace and Defense industry) or tobacco. But I have no problem with Monsanto. The industry has not done so well over the last 5 years and because this is a high P/E (high ROE) stock, one needs to be clear on the future prospects. Hard to tell but the stock probably trades at a discount due to its controversial nature.
• "Salt at the source: A day in a Lake Huron mine" (TheStar.com, date unknown): I am researching Compass Minerals (CMP) as a potential investment and ran across this video/photo overview of their main salt mine. Compass' valuation appears high and not sure what its long-term stable earnings are. I will do a detailed write-up if I research more.