petec

And I felt so smart (briefly) for lightening up at $11.50! Thankfully I still have most of my position. Seaspan is the next Brookfield*. You heard it here first. *This is a joke. Sort of.

Management are no longer incinerating money. They’re actually doing a very good job of clearing up the mess the father left. Whether they will be able to make money in future is another question.

I'm more of a funds person to be honest. But going back to the earlier idea of contrarianism, I was reminded of Russia recently. Cheap and hated (if not quite as much as a couple of years ago). I've never felt too comfortable with the governance. While it's the 'one that everyone owns', I'd have thought that Sberbank would have a pretty decent chance of doing well over time. If you want retail, then I suppose X5 would be one to look at. At the more obvious end, I find FEET (Fundsmith EM IT) becoming gradually more interesting, whether for owning or inspiration. The portfolio's been tightened up, and is full of super impressive EM consumer companies. They've just been too crazily expensive I think, even for their impressive stats. They seem to be slowly getting a bit cheaper. I wouldn't expect them ever to be 'cheap' (except in a 2008 situation) as they're just too high quality and profitable, but if they become semi-reasonably priced, they should be no-brainers for the long-term. Will revisit FEET, thanks. I also discovered SEDY this week - emerging markets dividend ETF, but what it really opened my eyes to is some optically very cheap Russian companies. Tempted by a small position.

Less the rollover cost...!

I had a feeling this might happen: with Thomas Cook in bankruptcy, Thomas Cook India has bought the rights to the brand for about $2m. Previously their right to use the brand was set to expire in a few years. EDIT: Actually I think they only bought it in certain countries. They didn't buy it in India - someone else paid $13m, which suggests TCIL don't think the brand is very valuable.

That - and the fact that DPM is highly volatile. It's been on 3 tears this year and gave back most (but not all) of the first two. Given Dundee seems to have no intention of selling or spinning DPM, it's reasonable that the DC.A share price doesn't immediately reflect what may be a temporary revaluation of DPM*. *I happen to think it will end up being a permanent revaluation, I'm just trying to explain why it might actually be perfectly rational for the market not to immediately reflect DPM's bounce in DC.A's share price.

They did not decide that. It was forced upon them by the various EU institutions, which as usual gave not one f**k for Greece's domestic democracy, which explicitly voted against austerity and was overruled. Terrifying. Greece is not booming. It is growing, but only after a decade of depression. And BTW "yoking countries together" this way was not the original mistake of the Eurozone. It was entirely deliberate, the intention being that the inevitable crisis would provide an excuse for fiscal unity, something that the peoples of Europe would never accept any other way.

You also get 6.27% of Equity Group Holdings which operates in eastern and central Africa and 79.5% of BancABC Botswana. Just following demographic trends you get the mental models of population growth, plus increased banking penetration as a lower % of people have bank accounts than most developing countries, plus gdp per capita growth. If they can have competent sober management through Fairfax Africa they should be able to ride that wave for 50 years. Indeed. Do you own it?

And this is a little off-thread because these don't have a history of compounding and fit more into the value/rerating category, but Atlas Mara is about to take control of Union Bank of Nigeria, which should be a compounder, and is demonstrably cheap vs the listed assets it holds. If you consider Greece an EM then Eurobank still has a long way to run too.

What are your best EM and retail ideas?

Not to mention our very own (well, Fairfax’s) Commercial International Bank of Egypt which has done 14.9%, plus dividend, in dollars, over the last 15 years. Quite tempted by a basket of these!!

I also agree re compounders and wasn’t looking for rerating candidates when I started the thread-but if someone suggests an interesting one who am I to argue? ;) Volatility notwithstanding, Itau has an ROE over 20% in an economy with inflation in the low single digits and a raft of disinflationary reforms happening to keep it there. It has a 10% earnings yield and can pay out half of that while growing at 10% or more sustainably. The economy is accelerating out of the worst recession in its history and the state banks are shrinking so the growth pathway for the private banks is clear. It might be quite difficult for Itau *not* to compound at 15%! And the currency is cheap so the opportunity in dollars is arguably even better. You’re right the volatility may create difficulties at times but it also means the stock is cheap.

Thanks everyone - lots of work for me here :) I broadly agree with the EM-biased comments. Itau for example has a good chance of compounding at 15% from here. But there are some good ideas from North America too. The distinction between those recommending high-multiple, high-growth stocks, and those recommending names that are more out of favour, is interesting. I am generally not well suited psychologically to holding high multiple stocks, although it can sometimes work for me*. As a result I tend to outsource out-and-out growth investing to managers who are good at it (Scottish Mortgage is probably the standout example in the UK) and I am more drawn to compounders like PDH and contrarian ideas like Softbank. That said, I'll take at least a quick look at everything on here. *My MSFT position was started in 2010 when it traded on 7x EV/FCF and everyone I spoke to thought Apple would kill Windows and Google would kill Office and the cloud would kill both. It's clearly rerated, but not to crazy levels, and my confidence in the underlying business is higher than ever. I'd obviously love to find another investment like that but they are scarce in this market, and until I do I see no reason to recycle the capital. Keep 'em coming.

14.7% total return. If it does that again I'm rounding up! ;) Where are you seeing that? I'm looking at morningstar which is supposed to be total return. https://www.morningstar.com/stocks/xnas/msft/trailing-returns Bloomberg. Fancy. I don't have one of those. ;) Nor would I if it had to pay for it :o

14.7% total return. If it does that again I'm rounding up! ;) Where are you seeing that? I'm looking at morningstar which is supposed to be total return. https://www.morningstar.com/stocks/xnas/msft/trailing-returns Bloomberg.

14.7% total return. If it does that again I'm rounding up! ;)

Yes, and it also reminds me to kick the tyres on Sberbank again. I suspect most 15% returns will come from outside the US, given how expensive that market is in relative terms.

True, but here's another way to think about it. Given the FCF, and the operating leverage, Microsoft could probably deliver a total return of 15% with revenue growth of 8-9%. But let's call it 10%. That means revenue of $325bn in 10 years. If global GDP grows at 3% in dollars, or about 1% real, which would not be a great result, then MSFT revenues will need to be about 0.28% of global GDP. It has already reached 0.15%. Perhaps there is some unbreachable ceiling between 0.15% and 0.28% but the fact that MSFT is currently growing revenues at 15% suggests it is not close to it. Yes, however when companies get too big and too powerful, people tend to get angry. A good exercise would be to see what other companies have had a large % of total market cap and see how they did once they go to the 7% or so threshold. I don't know the answer to that but it would be interesting. I would imagine Standard Oil hit that mark. Maybe GM at one time? Hence my point about regulation. I take some comfort in the fact that Microsoft is primarily a business-facing enterprise, not consumer-facing, and I can find no evidence that it has abused its pricing power over the years. In fact what it has done is make its products better and better. Whether being 7% of the S&P is a relevant thing I have no idea. MSFT is already 4.4%. What's the threshold for concern? And I can think of companies that have remained 7% of their local indices for years (Itau, for example) without ever having issues. Plus, it's a global company, and it won't be be anything like 7% of global market cap. Standard Oil wasn't listed, and the issue was that it had a virtual monopoly. If Microsoft didn't have competition I would worry but it clearly does in every product.

Aren't most of the S&P 500 going to be around? I bet that 50% of them will still be in the index. On average, there is a 4.4% change to the index each year according to this article https://www.businessinsider.com/sp-500-index-constituent-turnover-2015-6 And they don't just have to be around - they have to maintain their economics, which is hard to do in a growing market because growing markets attract capital. Longevity and market growth are necessary, but not sufficient.

True, but here's another way to think about it. Given the FCF, and the operating leverage, Microsoft could probably deliver a total return of 15% with revenue growth of 8-9%. But let's call it 10%. That means revenue of $325bn in 10 years. If global GDP grows at 3% in dollars, or about 1% real, which would not be a great result, then MSFT revenues will need to be about 0.28% of global GDP. It has already reached 0.15%. Perhaps there is some unbreachable ceiling between 0.15% and 0.28% but the fact that MSFT is currently growing revenues at 15% suggests it is not close to it.

Indeed not. Sorry!

This thread isn't really about MSFT but FWIW I think the company is taking share in several large, growing addressable markets, which drives revenue. It's capable of significant operating leverage which obviously helps earnings grow faster than revenue. It converts 100% of earnings into FCF so it doesn't need to grow at 15% to compound at 15% (more like 11%, which is still impressive but has a huge impact on compound maths). I think it is deepening its moats, which reduces one key risk - competition. And it's arguably less exposed to the other big risk - regulation - than the other tech megacaps. The future is inherently unknowable so I have no issue admitting I might be wrong, but I am not put off by the fact that it has a $1tn market cap any more than I was put off by the fact that it had a $500bn market cap 2 years ago. Would you mind answering the question as to whether MO can grow fast enough to compound at 15%? I don't know the stock well.

Part of me sincerely wishes I hadn't. Lots of interesting names here - thanks. The only one I won't bother looking at is Stone. I know how competitive that market is and I know I won't get comfortable with the valuation as a result.

The simple answer is: because I know MSFT far better. Not including the others doesn't mean I don't think they will do well, although they are very different businesses and I don't think one can assume that if one does well the others will too.

Thanks both. I don't know these stocks well enough. What are the mechanics behind their ability to compound at 15%? MO and WFC trade on (roughly) 8% earnings yields. Can they pay out 100% and still grow earnings at 7%?