mcliu

You're comparing apples to oranges. The two situations are completely different. http://en.wikipedia.org/wiki/List_of_PRC_administrative_divisions_by_GDP_per_capita It will be hard to get to $25,000 GDP per capita in 20 years for the whole country. Not impossible though. GDP per capita has grown by 10x over the past 20 years. You only need 3x growth in the next 20 years to get to something like $20,000. That's for 1+ billion people. There's also a big discrepancy in the growth. If you look at the top cities, they're already at over $10,000 GDP per capita and growing very quickly. If you take the ones that are above $10,000, that's still over 210 million people. I don't think looking at China as a whole makes sense. Yes, the poor parts will still be poor in 20 years, but the rich coastal parts will likely be just as rich as developed countries. And the engineers in those areas will likely be just as competent by then.

It's just a matter of time. Fifty years ago Chinese engineers can hardly design a functional toaster oven and now they're building space rovers and bullet trains. Eventually they'll be able to design better micro-chips. People forget that China's gone through a lot over the past century (multiple civil wars, WW2, cultural revolution) that's really damaged the country's institutions. It's really the past 35 years that most of the country started to move beyond farming and basic manufacturing.

Is this for his personal portfolio?

I would disagree, because while information is easily accessible, it's easily accessible for everyone. Back when Buffett was doing his special situations investing, you can actually have an informational edge if you dug deep enough. With the internet, any new techniques, situations, events are quickly distributed, so it's so much harder to get an edge or keep an edge for an extended period of time. Also, I don't think it's a bias that people think they're not as good as Buffett. In most cases, it's probably true. I don't think I'm biased when I say I can't run as fast as Usain Bolt, I think it's the same when I think that I can't invest as well as Buffett. I remember Buffett mentioned this in an interview something along the lines of "no one thinks they can do what Bill Gates does, but everyone thinks they can do what I do." I almost think the bias is that too many people think they can have an edge in the markets or beat the market like Buffett does.

Asia Standard....man. This one frustrated me for a few years. As of 2011 they had a $2b HK market cap. For this you got: ~200MM HK operating earnings from a solid RE operation $4B HK in securities yielding 190MM / yr in interest / dividends. etc etc. It was ~ .25 book. What I missed was that it ALWAYS sells for .25 book. Going back to 2006. I glanced at it recently and nothing has changed. They are doing just fine, but the stock just languishes. Price Waterhouse was the auditor. I'm 99% sure it's legit. It's a mystery. I can't figure out what I'm missing. I finally just threw in the towel. I was just looking at this today as well! Good assets, very cheap, and simple structure, but I don't ever see minority holders getting any money of this. I was looking at the bottom of the chain (Asia Standard Hotels) and they're making HKD150M+ on their hotel properties, but it's all getting stashed away in debt/equity securities. Only 1% dividend to shareholders. You've got HKD 8 billion+ of assets at market value selling for HKD 1.3 billion. These families also don't seem inclined enough to close the gap.. I don't get it. To some degree, trading on dividend yield almost makes sense if you believe that you won't get any cash out of these companies within your lifetime!

Looking at Spyglass, how are they planning to fund their capex? At $12 cash net backs and 14,500 boed production, they'll still be short $30 million after dividends right? I'm pretty new to this whole sector so I might be getting the math wrong, would like to hear your thoughts.

Well unfortunately we can't all go back and undo our worst investing mistakes of a few years ago, if we could we'd all be getting 15% CAGR returns... Well at least you agree that it's not their stock-picking that's hindering returns, but their macro hedging. As for the macro, it's only been 3 years. Fairfax started hedging in 2004 before things blew up in 2009. It may be too early to criticize their strategy. Once they close these hedges, maybe that would be an appropriate time to judge their abilities.

Wow, sorry but I have to strongly disagree. Fairfax should do much better than the 7.5% trailing 10y annualized return going forward. The return was so long due to the $4 billion loss in equity hedges and CPI contracts. If FFH was not hedged between 2010 and 2013, BV should be at something like $560 per share which will get you to around 15% annualized for the past 10 years. This clearly shows that the investments at FFH has performed solidly, but the results were detracted by their hedges. So unless you believe that FFH will forever be hedged, then yes, their returns will be lower. When the hedges come off, which they will, FFH should return to their 15% target. Obviously not every investment is going to be successful. No one is that good, but clearly FFH has had more investment success than not.

My questions: 1) What do you think of the transfer of wealth from savers to debt holders as governments continue to hold interest rates low? 2) The internet has allowed emerging market workers to obtain high quality education and level the playing field with their developed market counterparts. Given the huge wage differentials, do you think wages in the developed world will be impacted?

Good post. I think most people have stopped believing in large market declines after the bull market of the past 5 years. When valuations decline, and it inevitably will, the results will show a different story. I like what FFH is doing. They haven't forgotten the first rule of investing: never lose money.

GMO is a macro-driven firm since they have so much AUM. They have a pretty good track record with their macro calls.

Just because Buffett invests in one way doesn't mean that other methods can't work. Who wouldn't be 100% invested if they were as talented and motivated as Buffett? Soros, Icahn, Tepper, Dalio, Renaissance don't invest at all like Buffett, but they all seem to do fine. The same can be said of the team at FFH. The investment strategy is different, but it doesn't mean it's any less effective. Some of these guys are just better macro investors..

The knowledge gap is definitely shrinking because of the internet. For example, I'm taking Dan Ariely's course on Irrationality on Coursera and there's tons of people from different countries. You don't need to go to Duke University or even be in the U.S. anymore to have access to high-quality education.

On the other hand, if the situation is so great, why is the Fed still injecting $700 billion into the bond markets every year and being so cautious with tapering? I guess if you believe that the current interest rate environment is normal, then there are definitely many signs of improvement. Where is the data that supports that? I'm looking at the latest GDP figures and it shows a big jump in investments from 49% of GDP to 54% while consumption only increased from 48% to 50%. Credit is still growing double digits, probably to finance the increase in investments. The Shanghai index has dropped considerably since 2009 (5 straight years of declines!) reflecting the low ROEs in corporate China. Yet, despite the low returns, overall investments has jumped by 20% yoy.

If this is true, than where has that money gone? The chinese stock market has gone sideways for more than 3 years now. Bank of America has sold its stake in china last year. It looks like they are now talking china down. http://ftalphaville.ft.com/2014/02/03/1759962/in-defence-of-chinas-shadow-banks/ All the money's gone into factories, infrastructure and real estate, hence the huge over-capacity in most industries and double digit RE value gains across China, even in the Tier 3/4 cities. It's also why the stock market has gone nowhere since overcapacity is causing such low ROEs. People may be underestimating the amount of fixed-asset investment in China.

Globe and Mail had a recent interview with John Chen. http://www.theglobeandmail.com/report-on-business/rob-magazine/john-chens-simple-plan-to-save-blackberry/article17065516/

This is important. :) Thank you, Phoenix01! Gio +1 Very interesting. I'm don't get it. Aren't these total return swaps?

Very cool website! Terrific UI.

Hm.. I wonder how much BBM is worth? :) :D ;D

LOL, this can't be legal. :o

Good post zachmansell and wisdom. +1

I'm not familiar with the regulations in HK, but I'm speaking about controlling shareholder businesses in general. If the controlling shareholder is not friendly towards the minority shareholders, while they may not try to steal the whole company, there's nothing preventing them from larger than necessary expenses (having a couple of corporate jets, etc..) Hence you have these discounts to NAV, which may not be unwarranted. I am just starting to look at Henderson Land, this HK company is ridiculous cheap. P/BV = 0.5x. Book value has grown around 10-20% EVERY year for the last decade..... does anyone own this baby? I am still in the process of due diligence which involves just glossing over their 10K (or the ADR equivalent) But Henderson is a HK company. Marty Whitman basically said HK has good regulations to protect minority shareholders. Do you not agree? Also according to Wikipedia, twice the owner tried to buyout the minority shareholders but failed to get the votes. Their glossy annual report and 10% annual increase in book value seems to show that the minority shareholders get a fair shake. no?

The properties are marked-to-market on their books as per IFRS, so you would see big fluctuations in book value depending on how their marking these properties. If you factor in the lack of control, poor governance, conglomerates running like family businesses, over-valued properties and weak asset allocation, the discount seems pretty rational. Obviously, there are some better conglomerates and some worse so there may be opportunities. I am just starting to look at Henderson Land, this HK company is ridiculous cheap. P/BV = 0.5x. Book value has grown around 10-20% EVERY year for the last decade..... does anyone own this baby? I am still in the process of due diligence which involves just glossing over their 10K (or the ADR equivalent)

I heard software engineers are in huge demand, especially in California and that excellent engineers can get paid up to 7 figures when you include stock options and other perks..? Can someone confirm? You start with 6 figures (salary + bonus). However, it's not a lot on an hourly basis..

Thanks. Appreciate the feedback!