Arski

I think that Greentown Management is pretty resilient from the Chinese government. Andrew explains the reason quite clearly:

No problem, hope you liked it!

For the people who are interested. I just shared a post about what make CEOs great and how to recognize great CEOs. Link: The Outsiders (wixsite.com)

Yes, that would be the case. But then, because one dollar is now worth 50 cents, they need to double their earnings to stay even. How do they do that? By doubling their assets, they need a lot of additional capital for that. So, it's economically way more beneficiary to have an asset-light business that needs a lot less capital to double their earnings. Wouldn't operating leverage on rising prices make 2x earnings a low bar when their revenues are also doubling? There might be some flaws in my thinking here. This is what Buffett says in the See's Candies example about doubling revenues: "This would seem to be no great trick: just sell the same number of units at double earlier prices and, assuming profit margins remain unchanged, profits also must double. But, crucially, to bring that about, both businesses probably would have to double their nominal investment in net tangible assets, since that is the kind of economic requirement that inflation usually imposes on businesses, both good and bad. A doubling of dollar sales means correspondingly more dollars must be employed immediately in receivables and inventories. Dollars employed in fixed assets will respond more slowly to inflation, but probably just as surely. And all of this inflation-required investment will produce no improvement in rate of return. The motivation for this investment is the survival of the business, not the prosperity of the owner." I don't know exactly why but he is saying that a business needs to increase their assets in inflationary periods, instead of relying just on increased revenue because of price increases. Maybe someone could help me out and explain why Buffett does not use the concept that when prices increase, revenue will increase and nothing is changed in their inflation-adjusted earnings? Buffett's See's Candy example: “When we purchased See’s in 1972, it will be recalled, it was earning about $2 million on $8 million of net tangible assets. Let us assume that our hypothetical mundane business then had $2 million of earnings also, but needed $18 million in net tangible assets for normal operations. Earning only 11% on required tangible assets, that mundane business would possess little or no economic Goodwill. A business like that, therefore, might well have sold for the value of its net tangible assets, or for $18 million. In contrast, we paid $25 million for See’s, even though it had no more in earnings and less than half as much in "honest-to-God" assets. Could less really have been more, as our purchase price implied? The answer is "yes" – even if both businesses were expected to have flat unit volume – as long as you anticipated, as we did in 1972, a world of continuous inflation. To understand why, imagine the effect that a doubling of the price level would subsequently have on the two businesses. Both would need to double their nominal earnings to $4 million to keep themselves even with inflation. This would seem to be no great trick: just sell the same number of units at double earlier prices and, assuming profit margins remain unchanged, profits also must double. But, crucially, to bring that about, both businesses probably would have to double their nominal investment in net tangible assets, since that is the kind of economic requirement that inflation usually imposes on businesses, both good and bad. A doubling of dollar sales means correspondingly more dollars must be employed immediately in receivables and inventories. Dollars employed in fixed assets will respond more slowly to inflation, but probably just as surely. And all of this inflation-required investment will produce no improvement in rate of return. The motivation for this investment is the survival of the business, not the prosperity of the owner. Remember, however, that See’s had net tangible assets of only $8 million. So it would only have had to commit an additional $8 million to finance the capital needs imposed by inflation. The mundane business, meanwhile, had a burden over twice as large – a need for $18 million of additional capital. After the dust had settled, the mundane business, now earning $4 million annually, might still be worth the value of its tangible assets, or $36 million. That means its owners would have gained only a dollar of nominal value for every new dollar invested. (This is the same dollar-for-dollar result they would have achieved if they had added money to a savings account.) See’s, however, also earning $4 million, might be worth $50 million if valued (as it logically would be) on the same basis as it was at the time of our purchase. So it would have gained $25 million in nominal value while the owners were putting up only $8 million in additional capital – over $3 of nominal value gained for each $1 invested. Remember, even so, that the owners of the See’s kind of business were forced by inflation to ante up $8 million in additional capital just to stay even in real profits. Any unleveraged business that requires some net tangible assets to operate (and almost all do) is hurt by inflation. Businesses needing little in the way of tangible assets simply are hurt the least. And that fact, of course, has been hard for many people to grasp. For years the traditional wisdom – long on tradition, short on wisdom – held that inflation protection was best provided by businesses laden with natural resources, plants and machinery, or other tangible assets ("In Goods We Trust"). It doesn’t work that way. Asset-heavy businesses generally earn low rates of return – rates that often barely provide enough capital to fund the inflationary needs of the existing business, with nothing left over for real growth, for distribution to owners, or for acquisition of new businesses. In contrast, a disproportionate number of the great business fortunes built up during the inflationary years arose from ownership of operations that combined intangibles of lasting value with relatively minor requirements for tangible assets. In such cases earnings have bounded upward in nominal dollars, and these dollars have been largely available for the acquisition of additional businesses. This phenomenon has been particularly evident in the communications business. That business has required little in the way of tangible investment – yet its franchises have endured. During inflation, Goodwill is the gift that keeps giving.”

How do you see a mine expand their operations without making large costs, exactly? I'm just thinking about the difference between an existing mine that might be underproducing, on maintenance and repair, or has adjacent brownfield expansion opportunities vs a mine that has probable reserves that requires building of infrastructure to gain access to the commodity. With commodity price inflation, wouldn't the first mine be better position to capture profit vs the second that requires rapidly inflating capex and thus be less valuable? I think I agree. It would all become clear if calculations are made about the value of mine companies and their mines.

How do you see a mine expand their operations without making large costs, exactly?

Those are great points, which I should have included. It is of course not that easy for a royalty company as TPL to increase their amount of oil fields they posses. So, it will depend on whether they are capable of increasing their percentage on those oil barrels, that are extracted. I don't know how able royalty companies are, in general, in raising prices.

Yes, that would be the case. But then, because one dollar is now worth 50 cents, they need to double their earnings to stay even. How do they do that? By doubling their assets, they need a lot of additional capital for that. So, it's economically way more beneficiary to have an asset-light business that needs a lot less capital to double their earnings.

Just shared some thoughts about this on my blog, with an explanation on why asset-light businesses (so royalty companies as well) have an advantage with high inflationary periods.

Labrador Iron Ore Royalty Corp (LIF) seems also very interesting.

Today, I read a great review of 2020 by Horizon Kinetics. The main topic was about the Fed's expansionary monetary policy and what the consequences could be (inflation). Link: https://horizonkinetics.com/app/uploads/Q4-2020-Review_Final_Approved.pdf or https://horizonkinetics.com/whats-new/#4th-quarter-2020-commentary The best companies against inflation are asset-light companies and royalty companies are on the top of that list. So, the purpose for this thread is for everyone to share their highly promising royalty companies, if you have one. I own TPL, which had a huge run-up lately, but with inflation in mind it could still deliver great excess returns. Another royalty company I'm interested in is Anglo Pacific, but don't own any shares yet.

A section for Book Notes would be great!

Thank you all for the support! I will do my best.

Today I published my blog and first blogposts! One is an introduction about myself, why I started a blog and what you can expect moving forward. The second is a write-up about the A2 Milk Company - the one I posted under investment ideas as well. I would appreciate it if you all could share the things you would like to see in an investing blog and could share some tips with starting a blog. Thank you! https://ajnoordermeer.wixsite.com/luminouscapital

You mean EQD? Has anyone studied how far SPACs dropped during the global financial crisis (2008)? Yes I mean EQD. Here I found something interesting. But not very clear though. https://www.spacresearch.com/newsletter?data-ipsquote-timestamp=2020-03-23 Most important takeaway I think is that SPACs do bottom as well, but definitely have less lower bottoms than stocks.

It's a SPAC party! Bought some AVAN and EQC, and maybe some BTNB if it comes down some more. Had already a small stake in OACB and I'm down 5%.

Alta fox with Conor Haley - which is a great microcap investor - is one I'm checking sometimes if they have a write-up or some portfolio activity.

So I'm quite interested in microcaps for some time - even though a lot is overpriced at the moment - but could only find Interactive Brokers which would allow me as a foreigner to invest in the OTC market. The only issue is that I have to pay $10 a month for inactivity. Maybe someone has found another broker who would let me invest in OTC markets without paying for inactivity?

I totally understand. By the way, he had a lot of stock in his portfolio but it was dominated for 80% by his 10 largest positions. I don't know the exact numbers though.

Robert Kiyosaki seems to be pushing it pretty hard on Twitter! I liked Kiyosaki's first two books...Rich Dad, Poor Dad and Cash Flow Quadrant. They were a couple of the earliest investment books I read after Peter Lynch's Beating the Street...which was a terrible book to learn how to invest in the stock market. But over the years, Kiyosaki's gone stir crazy...he's pretty nuts now! Although I would still recommend his first two books to new, young investors. Cheers! A little of topic but how do you mean terrible book? 'One up on wall street' is one of my favorite books and was planning to read 'Beating the Street' one day. There was no intellectual framework in how to select stocks. It was full of discussions about how Lynch selected individual stocks, groups of stocks...alot of it based on "buy what you know". When I tried to invest using his methods, it was pure luck...half the time I made some money, half the time I lost money. It worked for him, but none of it could be duplicated! I finally woke up when I read Buffett's Letters, "The Intelligent Investor", and finally "Securities Analysis". That's when my batting average finally started to improve and the fundamental way I selected stocks was consistent, methodical and would work for the rest of my life. I got far much more value out of just reading 10-Q's and 10-K's in my first six months, than I did from Lynch's book. Kiyosaki's books were good in just changing my mindset in how to invest, why buy businesses, and to create passive income. But Ben Graham's books and Buffett's Letters changed my life forever! I will be eternally grateful to them! Cheers! I agree very much on the Buffett and Graham aspect and learned a whole lot more from them than from Peter Lynch, but I read 'One up on Wall Street' after I already got the "value" part of investing. I think it is a very insightful book after understanding the value aspects of businesses. I also think Peter assumed the reader already knew how to value a business in some way and that the book should be a follow-up. He himself uses the value part also, only growth and 'buy what you know' was maybe his number one. Still one of my favorite books.

Robert Kiyosaki seems to be pushing it pretty hard on Twitter! I liked Kiyosaki's first two books...Rich Dad, Poor Dad and Cash Flow Quadrant. They were a couple of the earliest investment books I read after Peter Lynch's Beating the Street...which was a terrible book to learn how to invest in the stock market. But over the years, Kiyosaki's gone stir crazy...he's pretty nuts now! Although I would still recommend his first two books to new, young investors. Cheers! A little of topic but how do you mean terrible book? 'One up on wall street' is one of my favorite books and was planning to read 'Beating the Street' one day.

New position in Shinoken (8909)

The 2019-2020 two-year performance gap between Buffet and the S&P 500 index was among the widest by which he has ever trailed, at 37%. ... In 1999, the performance gap between Berkshire and the S&P 500 reached close to 40%, but in hindsight, that was a buy signal. After 1999, Berkshire had one of its best stretches in recent history against the S&P 500, gaining approximately 30% during a period of years when the index was down by close to 40%. Just remember they were ~5x smaller then. Berkshire is a great company only they are just too big. I would be flabbergasted if they could even reach 20% per year performance for 3 years in a row. https://www.cnbc.com/2021/01/08/how-warren-buffetts-uphill-battle-against-the-sp-500-is-changing.html

How confident are you that they don't shrew up?

What do you guys do to adjust your portfolio for a probable crash or do you invest as y'all do as normal? I've a lot of cash at hand (30%) but I am not sure if it's the best strategy. I'm interested in gold and SPACs for storing my money, but haven't invested in one of those yet.