Luke

I agree with the bullish thesis, long fairfax. But 10x? What all has to go right to land at a 10x? I cant make my numbers work really to get to that outcome, could you walk us through it?

Thank you very much for sharing, i am currently reading the book ,,chip wars,, by chris miller and he also discussed at length how china tries to get access to key technology that they then use themselves. Just look at some of the quotes: "The most controversial example of technology transfer, however, was by Intel’s archrival, AMD. In the mid-2010s, the company was struggling financially, having lost PC and data center market share to Intel. AMD was never on the brink of bankruptcy, but it wasn’t far from it, either. The company was looking for cash to buy time as it brought new products to market. In 2013, it sold its corporate headquarters in Austin, Texas, to raise cash, for example. In 2016, it sold to a Chinese firm an 85 percent stake in its semiconductor assembly, testing, and packaging facilities in Penang, Malaysia, and Suzhou, China, for $371 million. AMD described these facilities as “worldclass.” "That same year, AMD cut a deal with a consortium of Chinese firms and government bodies to license the production of modified x86 chips for the Chinese market. The deal, which was deeply controversial within the industry and in Washington, was structured in a way that didn’t require the approval of CFIUS, the U.S. government committee that reviews foreign purchases of American assets. AMD took the transaction to the relevant authorities in the Commerce Department, who don’t “know anything about microprocessors, or semiconductors, or China,” as one industry insider put it. Intel reportedly warned the government about the deal, implying that it harmed U.S. interests and that it would threaten Intel’s business. Yet the government lacked a straightforward way to stop it, so the deal was ultimately waved through, sparking anger in Congress and in the Pentagon" Just as AMD finalized the deal, its new processor series, called “Zen,” began hitting the market, turning around the company’s fortunes, so AMD ended up not depending on the money from its licensing deal. However, the joint venture had already been signed and the technology was transferred. The Wall Street Journal ran multiple stories arguing that AMD had sold “crown jewels” and “the keys to the kingdom.” Other industry analysts suggested the transaction was designed to let Chinese firms claim to the Chinese government they were designing cutting-edge microprocessors in China, when in reality they were simply tweaking AMD designs. The transaction was portrayed in English-language media as a minor licensing deal, but leading Chinese experts told state-owned media the deal supported China’s effort to domesticate “core technologies” so that “we no longer can be pulled around by our noses.” Pentagon officials who opposed the deal agree that AMD scrupulously followed the letter of the law, but say they remain unconvinced the transaction was as innocuous as defenders claim. “I continue to be very skeptical we were getting the full story from AMD,” one former Pentagon official says. The Wall Street Journal reported that the joint venture involved Sugon, a Chinese supercomputer firm that has described “making contributions to China’s national defense and security” as its “fundamental mission.” AMD described Sugon as a “strategic partner” in press releases as recently as 2017, which was guaranteed to raise eyebrows in Washington. Or IBM: IBM wasn’t the only company willing to help Chinese firms develop data center chips. Around the same time, Qualcomm, the company specializing in chips for smartphones, was trying to break into the data center chip business usin g an Arm architecture. Simultaneously, Qualcomm was battling Chinese regulators who wanted it to slash the fees it charged Chinese firms that licensed its smartphone chip technology, a key source of Qualcomm’s revenue. As the biggest market for Qualcomm’s chips, China had enormous leverage over the company. So some industry analysts saw a connection when, shortly after settling the pricing dispute with Beijing, Qualcomm agreed to a joint venture with a Chinese company called Huaxintong to develop server chips. Huaxintong didn’t have a track record in advanced chi p design, but it was based in Guizhou Province, then governed by an up-and-coming Chinese party official named Chen Min’er, industry analysts noted. The Qualcomm-Huaxintong joint venture didn’t last long. It was closed in 2019 after producing little of value. But some of the expertise developed appears to have transferred to other Chinese companies building Arm-based data center chips. For example, Huaxintong participated in a consortiu m to develop energy-efficient chips that included Phytium, another Chinese firm building Arm-based chips. At least one chip design engineer appears to have left Huaxintong in 2019 to work for Phytium, which the U.S. later alleged had helped the Chinese military design advanced weapons systems like hypersonic missiles.

Added to FFH

Thats massive. +1

So your points are: 1. Nothing pops out to me as showing good management, capital allocation and growth. 2. Elkann took a helicopter to the shareholder meeting. 3. You are worried that Exor is used as a bank for the family, takes advantage of shareholders (issuing shares, selling shares) 4. According to you, many Italian conglomerates do that. To comment on point 1: Thats a 17.6% CAGR. Elkann did a lot of good things for exor that strenghtened their businesses on all fronts, good acquisitions (crysler), reorganisation that made the businesses worth a lot more, good returns on sales of business parts, entering new sectors, understand which sectors are attractive. It wouldnt surprise me if they beat the Index significantly long term! 2. Where you at the meeting, where is that info from? 3. Is there any sign they are using shareholders as a piggy bank? I disagree. 4. Exor is Exor.

On top of it, one of the value investors i respect (Guy Spier), has a meaningful position in them as well.

I like the business, good management, opportunistic acquisitions, valuable steaks at a discount to NAV, shareholder friendly, promising goals of growth. Do you have a different opinion regarding exor? Let me know.

Added to Exor

Nowhere did i say ,,to the moon,, or that i have no idea what they are doing...the reality is that amazon developed like it is due to their spawning and investing engine. Nick Sleep identified that early and its a different business now than it was 10 years ago. I wouldnt be surprised if we see a lot of new things and changes in perspective in amazon in another 10 years.

Well, you read what you want to read. I never said i have no idea what they do, the current businesses are quite clear and understandable. The spawning engine on the other hand is kicking but we dont know what it will pop out, past performance showed that they have a good hand for it. Amazons financials are difficult to understand, they dont tell us how many millions were put in projects that didnt end up giving returns and how many millions lead to significant returns. AWS is an example of that spawning engine working very well. I also never said they are going to the ,,moon,, (again thats what you probably want to read). Amazon could very well be a 2x-3x over a decade. Its an incredible business...thats not the moon. Perhaps you have any other input than unnecessary noise. Your reply made me smile.

Wdym?

I still think Pabrai hit it on the nail, Amazons Valuation is not egregious, they have a spawning engine of which we dont know what it will create and have in 10 years, we dont know the return on invested capital and their statements dont reveal exactly whats going on, the parts they have right now are valuable, have competitive advantages, they will be here probably in 10 years and i do think amazon by then will be a more valuable, better, stronger business. Will it 3x in 10 years? Will it only 2x? Its an amazing business and a buy and hold for me

Sold some Meta and added proceeds to Nintendo and Exor

Its true for all chip companies but TSMC owns this market which relies on hundres of billions of dollars of capex, lots of machines from ASML with long waiting and production times, an amount of talent and educated engineers non existant after the taiwan war, no earnings for many businesses for the forseeable future etc...

So we have two major high NA foundries, TSMC and Samsung. Both can produce cheaper in Asia. 1. Who will "force" TSMC to build factories in the US? 2. They do need a lot of electricity but why would that be a problem? Its not like there is not enough? 3. That they are not an asset light business is clear but ASML has many locations in taiwan, close cooperation etc? Why would there be problems with the equipment? 4. This whole new cold war will affect every technology business, it all start with TSMC. The iphone, the Nvidia AI, the AMD chip for Teslas etc. Intel wont produce as efficient as TSMC and certainly not in the US.

Interesting, we know Buffett liked TSMC enough to buy 4b of it, he also thinks its a phenomenal business but he doesnt feel comfortable with China. Fair enough! The seismic point was a bit odd, they all know the deal about that in Taiwan and built accordingly...

Built a starter in Exor

Mohnish Pabrai: The concept of circling your wagons: You dont really know a business till you invest in it. It really takes you a few years of ownership to really understand the business. You may have some ideas about the business before. Its when it drops 40% in price after you buy it, thats when you will have a real education of what the business is all about and what its worth. Your analysis will be extremely good at that point,it wont be so good before you buy the business, it will be good when it drops 40%. Super funny Quote

Did Disney trade at almost 8.5x earnings (EV), 30b EV in 2015? Remember, if Nintendo falls 50% this stock will trade at 15b EV, that Marketcap alone will probably justify the movies they make if we look at marios current success...:D Excluding all the other strong segments. Downside looks really fine and upside as well. I am in for the ride.

As lots of other folks here i like Nintendo too, i increased my position to 7.5% of my portfolio this morning. I think crossroad capital glamorizes the bull thesis a bit TOO much, but i do agree that this is value and with lots of potential upside.

I bought some Intel when Klarman was buying Intel, he sold after a significant loss...;-) Props to the rest you said!

Thanks for the entertainment, had a laugh in the train @Gregmal @CorpRaider

The videos i linked talked about exactly that, those countries have, as you said, so much manpower, willingness to grow and to rise to higher standards of living, they could have even bigger GDPs and play a way more important role than europe today. And with that of course plenty of competition for the so called safe heavens/companies we would have thought to exist for decades. Imagine if these geopolitical tensions are put aside and technology will be shared globally, many new smaller and bigger competitors coming in. As far as i am aware china is trying to connect and grow: https://www.cfr.org/backgrounder/chinas-massive-belt-and-road-initiative Extrapolate this a few decades, exciting times!

Country success goes over individual shareholder success, to a degree yes. But China understands they cant grow alone so i think that this incredible disregarding of investing in china and the ,,china is uninvestable,, is just false. Growth at all cost is what brings this country forward, not billions in dividends that go to few billionaire shareholders but real growth for common working people. This story of zero profits is also just false, valuations in china are partly ridiculously cheap, if these come up bar with the US the returns are very decent. And many businesses had stellar returns. High GDP growth will mean good shareholder returns, as long as those businesses dont become predatory! The individual businesses treat shareholders similiar to US, just look at tencent, there is no difference with dividends buybacks and culture. Whats different is the willingness of the government to regulate and also their ability to regulate. In the US many businesses can engage in predatory practices, pay ridiculous wages to people, abuse them, shatter unions, bought politicians that harm the majority of working people. In China there is from one night to the other immediate action and tough regulation, the american shareholder then comes with ,,socialism,, and ,,no shareholder rights,,. I dont think its true and many regulations are very smart. If you bought shares in tencent 15 years ago, the story will be the same and also for the future. The only difference is again, the governments ability to regulate markets for the good of the economy. In China practices like FORCED yearly increased wages of 15% in several coastal provinces made many businesses move to the countryside for cheaper labour. The government can pull levers to grow underdeveloped parts much more than the US. They CCP administration has smart people sitting there looking at the US, what works and what doesnt work and then they can immediately start implementing without needing votes and all of that. It gives them an edge, especially in long term planning. China is already a dictatorship and authoritarian, doesnt necessarily have to be bad as long as the leader organizes that his people are taken care off so they dont revolt. The CCP knows this very well and Xi JinPing is someone who takes common prosperity to the heart IMO. Is it likely that tencent, JD, Baidu will be businesses that will be better and worth more in 10-20 years. Look at how much china can grow their country. 1.5b people, a government willing to growt the economy as hard as they can, pulling levers in countries all along asia, africa, europe. They invest where they can, and they invest very well. Its a no brainer for me to include some of these names at reasonable position sizes. Guy Spier has Baba and Prosus, Pabrai has Prosus, Munger has Tencent and Baba, there will be many more who own these assets for a reason. India is great, China is great, they will both be bigger economies with more and more influences in the future!

This was a good clip to describe the point of view of africa and african-chinese relations vs germany now