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Articles for the week ending December 16, 2016

Some stuff I found interesting... in no particular order...

  • (Recommended) "Napoleon Is Dead! Wait. That's a Stock-Market Scam." (Barry Ritholtz, Bloomberg, Dec 16 2016): Everyone has heard of fake news, which are more easily spread on the Internet, potentially having a political and social impact, but, believe it or not, it extends into the investing realm as well. Probably doesn't impact long-term investors that much but still something to watch out for. In fact, how many of you have heard of the fake-news-driven Great Stock Exchange Fraud of 1814?
  • "China Halts Trading in Key Bond Futures as Panicky Investors Sell Securities" (Yifan Xie and John Lyons, The Wall Street Journal, Dec 15 2016): Not a major story in itself but something to watch and see if it is a trend... There have been several stories in various media of emerging market bonds selling off (due to rising US$ and rising US interest rates). Some macro investors speculate that emerging markets will underperform and some may even face debt crises (especially those with US$-denominated bonds). The thing about China is that its currency is pegged (within a tight range) and capital is flowing out right now (government is trying to block that flow but having a hard time right now).
  • Tim Hortons/Burger King deal possibly hitting peak (Tara Lachapelle, Bloomberg, Dec 14 2016): Restaurants are definitely outside my circle of competence and they are always puzzling to me. I remember a lot of money being spent trying to integrate Tim Hortons and Wendy's a decade ago and it didn't really do too well (they split up eventually, although they still share some locations in Canada). Now 3G capital has been trying to generate synergies between Tim Hortons and Burger King and I wonder how it is going to pan out in the long run. They may be hitting a peak. For what it's worth, Tim Horton's is still very popular in Canada and very dominant (haven't seen any negative impact from their cost cuts).
  • "The Russian App That Has Destroyed Privacy Forever" (Bloomberg, Dec 6 2016): "Imagine a smartphone app that lets anyone take a picture of anyone and then find that person on social networks." I am generally pro-technology but stuff like this is definitely a bit scary and something few would have imagined 30 years ago. In any case, contrary to what is generally portrayed in science fiction, I think governments utilizing such technology are more of a threat than individuals or businesses. Like most things in life, I think humans will adapt if  things start getting out of control. For instance, Internet technology is way more secure now than when it first became popular (e.g. email used to be plain-text and easily intercepted and read by anyone but nowadays they are encrypted; credit card authentication used to be so simple (anyone could pay for things) but now transactions get rejected if they don't fit complex user profiles (someone using your credit card from a different country is generally blocked)).
  • (Recommended) "Hack Brief: Hackers Breach a Billion Yahoo Accounts. A Billion" (Lily Hay Newman, Wired, Dec 14 2016): The biggest hack in human history was just confirmed when Yahoo disclosed that a billion accounts were compromised (Yahoo apparently had 800 million monthly active users in 2013 so the number of individuals is probably closer to 800 million). An Internet Services company with such poor security raises a lot of serious questions. It's surprising Yahoo didn't focus on security given how it doesn't have meaningful tangible assets and almost the entire worth of the company is due to customer relationships and brand--it's sort of like a food products company not caring about food safety or product tampering. Management and Board of Directors are truly asleep. Rumour is that Verizon is re-thinking its Yahoo takeover given the potential long-term liabilities (adverse impact of losing email addresses, birthdates and phone numbers won't be known for years--since that information is also used to partially authenticate other non-Yahoo services (such as bank accounts, online shopping, etc)).
  • "The Inside Story of Apple's $14 Billion Tax Bill" (Gaspard Sebag, Dara Doyle, and Alex Webb, Bloomberg, Dec 16 2016): Detailed look at how Apple was avoiding taxes by routing them through Ireland. This is a problem and I think quite a number of companies are going to end up with big tax bills (mostly in the technology, biotechnology, and pharmaceuticals industries). This is a situation where what's legal and what's moral is wide apart. People like me who believe in taxes don't want anyone paying low taxes, whereas others who believe in low taxes believe anything legal is fine. Companies like Apple are probably doing what is legally ok (don't quote me on that; I'm not a lawyer) but highly questionable. It's somewhat akin to the argument of whether it is ok for individuals to be investing their assets through low-tax jurisdictions such as Bahamas, Cayman Islands, etc--clearly legal but questionable given that if everyone did that, there won't be enough taxes to pay for government services.
  • "Nokia’s next chapter" (McKinsey Quarterly, Dec 2016): I was close to investing in Nokia about 5 years ago but good thing I never pulled the trigger on that disaster. Interesting to see how things are evolving at the company after it exited the mobile phone business.
  • (Highly Recommended) "A Dozen Things Warren Buffett and Charlie Munger Learned From See’s Candies" (Tren Griffn,, Nov 25 2016): Very good blog post examining See's Candies. A good analysis of a company that doesn't really grow--quantity sold only doubled in 35 years--but has increased its sales significantly with very little additional capital. Unfortunately, unless you are smallcap or microcap investor, I don't think you will run into companies like this. Most companies have much higher unit growth, or have declining quantity; others who do grow very little in terms of output (say mature industries like food products) tend to require capex investment or are commodity businesses with no pricing power. The best Warren Buffett investment to examine in my opinion is Geico (or possibly American Express when he bought it in the 70's), or if you are not into financials then Washington Post (Buffett at his best and probably my favourite investment of his).

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