giofranchi
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Posts posted by giofranchi
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The one big idea is deflation.
--Mr. Soros
Mr. Watsa has been saying this all along, hasn't he? ;)
Cheers,
Gio
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George Soros Talks EU, China, Fed and Donald Trump - 49 min interview
http://www.bloomberg.com/news/videos/2016-01-21/george-soros-talks-eu-china-fed-and-donald-trump
Thank you very much for posting! :)
Cheers,
Gio
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Soros sounds more and more in Watsa's camp:
Cheers,
Gio
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The first part of the roundtable is pretty much thrashing and tea leave reading very similar to macro threads. If these guys were held accountable for their macro predictions, most of them would be out of jobs long ago.
Maybe unsurprisingly, I find myself in full agreement with Felix Zulauf's macro view. We'll see.
Me too…
But I still think macro investing is poor business. One of the most important feature of good business is predictability. And the predictability of macro investing, at least as far as timing is concerned, is very low, almost non-existent.
Therefore, though I might agree with Mr. Zulauf, I would not invest with him.
Cheers,
Gio
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I'm trying to expand my skillset from pure fundamental analysis, and have initiated a very small short position in the Euro to play around and see what I can learn.
I thought your results as an investor have been quite good until now… Why do you want to change something that has worked very well so far?
Cheers,
Gio
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What's the purpose of posting something like this? Gio is not even an active part in that particular discussion in this topic.He's just using the Giofranchi method. ...
John,
In previous years I have always reported the overall increase in BV of my companies, simply because that’s what I am interested about and that’s what I keep track of very easily. The return from my stock market investments alone is more difficult to calculate.
I was told the BV of my companies doesn’t make sense… Therefore, this year I have not posted any result.
Just in case you care, the BV of my companies is up +4% for 2015, while the return from my stock market investments alone are in the red probably high single digit.
Cheers,
Gio
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Did about 20% 2015, but I'm not that happy because FX helped a lot and without it, results would be a fair bit worse.
I feel like 2015 was a particularly exhausting year for most market participant. That's good. I prefer everyone to be mistrustful and worn out than happy and contented.
This is very impressive! With a large position in VRX, AAPL that has gone nowhere, the Malone’s family of businesses that have appreciated very little, a 20% return in a year the market is flat means really a great job from the rest of your portfolio! Would you share with us which were your best performers?
Thank you,
Gio
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I have come to think I want to invest both in companies with long runways, which can go on growing for a very long time and therefore don’t distribute dividends, and in companies which are more mature and therefore distribute generous dividends.
The balance between these two types of investment depends on the general environment: under certain conditions I am going to hold more of the first kind of companies (basically when general valuations are reasonable or the market is oversold), under other conditions I am going to hold more of the second kind.
Cheers,
Gio
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I am reading [amazonsearch]A Curious Mind[/amazonsearch] by Brian Grazer.
It is very interesting so far, and I would recommend it.
Find in attachment what Mr. Grazer has to say about "curiosity meetings".
Cheers,
Gio
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I agree with all that you say Parsad
+1!
but it is a bit odd to invest in something that needs a high oil price, when you are on public record as saying that commodities will fall.
+1!
Cheers,
Gio
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This is always going to be a matter of personal opinion but I am fully in favour of the dividend. It means owner/managers (big and small) are treated the same way as owners. It means there's no debate about how a bonus system should be structured. It means there can be no skew in the incentives.
Ultimately paying a dividend means paying each owner money they already own. Paying a bonus means transferring wealth from shareholders to managers. Dividend wins every time - for me.
+1
Cheers,
Gio
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I agree. Great accomplishment. And let’s hope this will turn out to be an important step towards their final goal that will benefit all humanity.
Cheers,
Gio
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I am sure it is!!... But also very difficult for me to understand what he is saying… Too bad! :(
Cheers,
Gio
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Gio,
I think you misunderstand MA/V. There are 6,300 banks or so, but the actual banks aren't issuing credit cards. Sure they issue a card with their name on it, and the customer think they have a "First Bank of Smallville" credit card, but it's a branded relationship card.
Say a small bank wants to do credit card lending. They buy a package from their core system to support it. This is the network effect. They receive MA or V cards. The bank itself didn't do much. They extend their balance sheet to an extent, but can even outsource that if they want.
The value isn't the pipes, or encryption, or credit checks or anything, it's purely relationships. That's the value, it's the relationships and a trusted brand. The brand is so powerful that well read investors on this thread still aren't sure exactly what MA/V does. They just associate the logos with credit and cards.
More than anything I think MA/V are simply brands. A new merchant starts, what do they need? They want a machine that takes V/MA and sometimes Amex, but Amex is optional, Discover an after thought. They trust those networks.
Seems like everyone on here is more tuned in, hipper than the general population. Sure, a little boutique gourmet cupcake place will probably do ApplePay because the trendy customers might want it. But the value of Mastercard is I can be driving through the middle of Kansas and if I need car repairs I know the small town mechanic will accept my payment. Do small business owners in Manhattan, Kansas know what Apple Pay is? I know some very intelligent individuals who still marvel at "the little white thing on an iPad that takes cards" and we think Square is passé.
Maybe these businesses are dead. The thing is world-wide acceptance at the lowest common denominator takes a LONG time. If MA/V are dead today from ApplePay or the block chain it might take another 20 years before there's some payment system that I can use in Punxsutawney one day and then Leige the next.
Credit cards started in the 1960s and they finally hit world wide acceptance at the lowest common denominator in the late 1990s. Are Apple and Google willing to stick with their payment plans grinding along for 30 years before they hit critical mass? Maybe, I don't know.
The best way to think of MA/V are as clearing houses for banks.
Thank you for the explanation.
My question, though, remains the same: is the V/MA system a very efficient mean devised by banks to extend credit to consumers effortlessly? If so, why should banks, which already keep for themselves the great majority of the fees involved in any payment transaction, accept to change that system? What’s their incentive?
Cheers,
Gio
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How hard is it going to be for them to execute agreements once they've essentially "mapped" out the vast majority of people's credit cards using Apple Pay registration?
There are 5,441 commercial banks in the US as of Q2 2015 (https://ycharts.com/indicators/us_number_of_commercial_banks). In Europe there are many more banks. Think about Latin America and Asia… Most of those banks issue credit cards and bear credit risk, don’t they? And most of those banks have established relationships with V/MA.
It doesn’t not seem an easy thing to do to replace those established relationships, which have been hugely profitable for all the banks involved, with new relationships…
But I might be wrong. If instead it is an easy thing to do, V/MA moats might shrink in the future.
We will see.
Cheers,
Gio
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merkhet,
still remains the fact that any new entrant, if it is to replace V/MA, must create its new network of relationships with banks all over the world.
It doesn’t sound as an easy thing to do imo… But of course I cannot be sure… If instead it requires little capital and almost no effort, than V/MA business model might seriously be threatened.
This goes well beyond technology: any new entrant must partner with banks on a global scale, displacing the rules and the agreements those banks have become accustomed to dealing with V/MA and introducing new rules and new agreements. To me it seems that lots of work is needed… And why should the banks accept to be bothered with new rules and new agreements? We have seen the already keep for themselves the great majority of the fees in any transaction… It doesn’t seem they have much to gain for this effort of “changing the system”.
Cheers,
Gio
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To me the more pressing questions about V/MA are 1) what growth can they sustain given the high penetration in developed markets? Note that they are mostly shut out of China. 2) given they are no longer bank owned, can banks force pricing concession over time, hence eroding their margins? 3) what happens to their margins if Apply Pay etc becomes the norm in 10 years?
Just a few examples. Given they are at 30x, even marginal reduction in growth rates and margins will impact the investment.
+1
Cheers,
Gio
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More like 150 bps from Visa now, so that is a huge incentive to cut them out. And, yes they would need to setup a partnership with banks, guarantee transactions etc. Not sure why this would be that difficult for Apple or Google. To some extent they are already doing this with the debit transactions on Apple Pay. Merchants, consumers and banks should be eager to go in this direction.
Another crazy option would be to use some of the massive unused balance sheet cash to setup a "bank" themselves to offer the credit. I see that as unlikely, but it is possible.
Article on the fees in Canada now:
This thread makes me want to buy more Apple and Google... And they are almost certainly more capable of stopping fraud as well.
See HJ's post.
Here's another nice summary of who gets what.
Thank you, HJ and wknecht!
This is very useful.
Cheers,
Gio
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The tech players are in the perfect spot to edge out V/MA with minimal capital or effort.
Well, you seem to believe that to replicate the network of credit risk bearers (banks) V/MA have partnered through the years on a global scale requires only minimal effort and no capital.
If that is correct, then I agree V/MA moats might become weaker over time.
Cheers,
Gio
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One more announcement of the death of the credit card model...
I would really like to understand… but I don’t! How is all this supposed to handle credit risk? The article ends with the following sentence:
in a world where everyone is known, there is no need for an omniscient middleman. That feels like a scary fact for the networks.
But the fact “everyone is known” (whatever it means…) doesn’t automatically imply that everyone knows if everyone else is worthy of credit or if he/she is not, right? As long as consumers want credit, there must be credit risk bearers. And those credit risk bearers have partnered with V/MA in two global networks that work very efficiently. Who is going to replace those networks? How? And why? If new entrants are supposed to be profitable, and have to build a similar infrastructure to the one V/MA already have in place, how could they compete with V/MA on price?
Could someone tell me what I am missing here?
Thank you,
Gio
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Im rambling here but I guess you could see advertisements like this...
Switch to Apple/Google ****P2P to help lower margins and fees target/walmart pays with the cash you already have!!!
OR
Stay with Visa/MC and we will give you 5% cash back and or points you can use for FREE stuff. The more you spend the more FREE stuff you get!!!
With this are the competing advertisement I take Visa at 30x earnings all day long.
Well, basically I agree… But 30x earnings is a very high price to pay… Therefore, it remains a small position right now, while I keep track of business developments, and hoping to buy more in the future at an attractive price.
Cheers,
Gio
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Google Pay would charge a nominal cost/transaction because of the large zero-cost float. Google has 1.4B users; if just 50% of their users sign-up to a Google Pay wallet, and the average balance is $30 – they obtain 21B of float (1.4B users x 50% x 30). Investedt at 1.5%, they would earn 315M.
Which is peanuts for a company that could convince 700 million people to use its service… If they have to build from scratch the global infrastructure of “credit risk bearers” that V/MA already have in place, it doesn't look like worth the effort.
Google is also a distribution platform; very similar to your grocery store. The more popular it is the higher the stocking fee it can charge suppliers. Ultimately it will be the incremental advertising revenue that pays for it.
This might be true, and it might be true for Apple too. But if for both of them their payment services are only a mean to reach more people, it is not clear why they should invest all the time and the resources need to build from scratch new global infrastructures of “credit risk bearers”, while instead they could decide to simply partner with V/MA and use those two infrastructure built throughout the years, already in place, and perfectly functioning.
Cheers,
Gio
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Visa and MasterCard don't grant credit, the card issuers do. Visa and Mastercard bear no credit risk, except maybe some small float from transactions.
Ok, I understand. But, whoever bears credit risk, it is a business establishment that is very long dated and that works extremely well. V/MA have built a worldwide network of card issuers that work with them and are willing to bear credit risk. It doesn’t look like an easy thing to replicate… Especially if the incumbent enjoy an advantage of a couple of decades… Therefore, the question remains: why should Apple, Google, etc. make such a huge effort for little or no gain? If, instead, they want their payment services to be profitable, how is it that V/MA, with the huge advantage of having their networks of “credit risk bearers” already in place, should fail to be the low cost producers?
Cheers,
Gio
George Soros - 25 min interview on Bloomberg
in General Discussion
Posted
Surely it could. But will it be a permanent pick up, or just a fluctuation around a downtrend? “The one big idea” Watsa has been talking for a while is that we will have a secular downtrend in inflation until this global deleveraging is over. We will see.
Cheers,
Gio