yudeng2004

Check out the Investment Ideas board I started a LeapFrog thread there.

The Bezos effect - it's puzzling isn't it, considering that great value stocks today actually have growth, and often GREATER growth than the bubble stocks. I think if someone is crazy enough to pay 100 PE for 50% growth, and say 5-10 PE for 0-10% growth, then it's understandable to some extent. But when they pay 500-1000 PE for 8-30% growth, and 5-20 PE for 20-40% growth. That's when I check if I accidentally took some pills or something. So they want to pay MORE for LESS growth in earnings?? Anyways we probably will get that blow-off-top then our opportunities will emerge. Netflix may move to 210 simply because everyone is looking at it and says "It's in a perfect Pennant Formation!" and it will be a self-created reality. I see a lot of people out there who are saying they will buy Netflix until 200-220 then they'll short it because of the Pennant Formation -> Blow Off Top -> Crash pattern. And it may actually happen because they all believe it.

I noticed some patterns in this current market sentiment, and found it kind of interesting: Look at these particular names and how similar their financial profiles are: Apple (AAPL) - huge cash pile, 8x PE after net cash, low debt, STILL has growth left since the smartphone market itself is not done growing, CRASHED after earnings. Baidu (BIDU) - huge cash pile, 18x PE after net cash, low debt, grew revenue 40% latest quarter, and China's internet penetration is still only at 42%, and search is still by its nature a very wide-moat business, CRASHED after earnings. LeapFrog(LF) - huge cash pile, 4.5x PE after net cash at end of Q1 2013, still the leader in the growing children's tablet market and won more toy awards this year than Mattel/Hasbro/VTech combined, CRASHED after earnings. Notice how the above companies' financial profiles are still insanely good but their growth prospects went from "HOT" to "Decent" but is no longer at the forefront of a "Paradigm Shift". Then take a look at these companies: Netflix(NFLX) - huge debt with boatloads of off-balance-sheet content obligations, creating their own VERY expensive shows (which is a hit-based business), top-line growth actually not that great. LOW return on equity/assets. Amazon(AMZN) - low margin, and actually LESS than 25% growth and slowing, HUGE capital expenditures, low return on equity/assets SalesForce(CRM) - has growth, but it's very expensive growth at the expense of income. But these companies all scream "Paradigm Shift" and now really reminds me of the Internet Bubble craze where no price was too dear to pay for the changing nature of business models. Do you guys feel the market is behaving like VC's right now? They want companies to spend, spend, and spend more to catch the "Paradigm Shifts" and the price paid does not matter. The ironic part is the companies in good financial shape still have decent growth prospects ahead of them, just without the "Paradigm Shift" label. BIDU had more revenue growth rate than Amazon, Netflix, and SalesForce. The capital flows of this market is turning increasingly speculative. It thinks one group of companies is taking over the world, and the other group will soon die. Of course, this trend might diverge further but I think the current state is the most divergent we have seen in years. It'll be interesting to see how much further the divergence will continue!

We all decide at some point to sell portions or all of a particular position in our portfolios, I am curious what thought process you all go through when deciding to do this? Is it purely a fundamental decision for you, or do you look at market factors/events, trends, or a balance of these factors? Here are some scenarios that I have experienced and I'll explain my thought process at the time, and I hope to get your answers as well: 1) [The stock I hold is near 90% intrinsic value, and I have not found other alternatives: case a): market is undervalued or fairvalued: I hold the position and do not increase cash. case b): market is overvalued: I should sell but I still hold most of the time, since the stock has not exceeded fair value (this always bites me). 2) The stock I hold is overvalued: I always sell regardless of market conditions/other factors. 3) The stock I hold is undervalued, but there is a huge looming macro problem such as Europe mess: I sell a portion and buy some hedges. 4) The stock I hold has had a huge run, but it is still undervalued:I don't sell since it is still undervalued even though pull-back is 90% likely (I look back and it seems after huge run-ups it nearly always good to sell, this always bitse me too) 5) The stock I hold is at 70% intrinsic value, I find another stock at 40% intrinsic value. Even tho I should sell here and switch even after tax considerations, I find myself lazy sometimes and do not do this nearly as often as I should. Any other scenerios you think of would be welcome in this thread. I am asking this question because between macro events, fundamental analysis, and also trends(run-ups), I find myself trying to juggle these factors and I wonder if any of you do this or not, and what is the thought process you use when you make a sell decision under various scenarios?

The first person that came in mind for me was also Elon Musk, but I think he leans probably even more toward the revolutionary side of things, and is less pragmatic than Steve Jobs. I think Elon Musk will be more like Nicolas Tesla than Thomas Edison. If you look at the Tesla cars, they are niche items and the sports car is priced too low. He is not making a margin on these products, yet they have limited production and their novelty should allow them to command a higher price (their customers are super rich anyhow, also helps with a premium image). But Musk wants to become the next GM while his products are entirely geared toward the niche, yet he is not commanding a high margin. I don't know how he will reach his goals this way. I remember someone telling me that if you want to create a great company you have to either be "the best"(apple, farrari, etc commands premium pricing) or "the standard" (microsoft, toyota). Musk is trying to reach mass audience with "the best" products among electric vehicles, and he is not commanding a premium pricing. He is in weird position.

I want to hang this on my wall. This is THE key to doing things successfully if you have vision. But there is another under appreciated aspect of this - that some cultures tolerate this behavior more than others. I have ran teams both in China and US, and believe it or not, I have an EASIER time to tell others that their ideas suck in the US. In China, I can just feel in the air that people there RESENT the fact that you could have more insight/is smarter/more talented. I call it "psychological communism". If you think about it, after so many centuries of political suppression in China, they developed this psychology "it's not that anyone is smarter than anyone else, it's just some have higher socioeconomic status because of their political status". Which is TRUE in China even today. But the problem is that they also believe in the reverse "If everyone has the same political status, then everyone will have the same socioeconomic status" which is NOT TRUE. It is still more effective to use political authority in China than to use intellectual/spiritual authority. The psychological shackles and cultural burdens there still exist. In US I would say "I get to decide this cuz I know more than you" because this is an easier sell. In China I would say "I get to decide this cuz am the boss" because this is an easier sell. This is why China won't be able to create an Apple like company for a long long time, geniuses simply have no place there, and even if you are a genius, you would spend most of your time trying to fight for political positions as opposed to trying to create great products.

Hi, I am glad to finally get back to focusing on investing after these years of entreprenuership.

Apple won't slow down immediately, but they are much more likely to miss the next round of innovation without steve jobs. He is a very unique person who has the ability to mold together consumer fashion, art, technological trend, marketing methods all together. This combination of abilities was something he has always had, even when he was young, so I think for someone to fill that shoe is really hard. There maybe people out there who might have some of those qualities, but unlikely all of them - steve jobs is a product of chance too. He is kind of like Michael Jordan - the most gifted natural athlete, the hardest worker, the most ambition to win, the most clutch, the most skilled (lowest turnover ratio despite highest usage rate for some seasons). If you had any 2 of these qualities you would be an all-star; if you had 3 you would be considered a top 5 player in the league at any given period; If you had 4 you would be in the hall of fame; if you had them all you would become a legend. This is how Steve Jobs is - a combination of qualities that have a very small chance of coming together on a single individual. It just doesn't happen that often.

Great article Cardboard, there are other factors to consider for this particular trip: http://www.guardian.co.uk/uk/2011/sep/24/scott-antarctic-lies-race-pole?newsfeed=true It mentioned that Scott also wanted to do more than just go to the pole, he had plans to collect a bunch of natural specimen for research, and those made his mission a lot more complicated. Scott also wanted to find out whether mechanical/horse/dogs were more effective so he was testing all 3, whereas Admunson basically just used dogs and didn't think about much else. I think this is true in investing as well - a few weeks ago I was discussing with a friend about shorting Europe. He started to ask questions like "it would be interesting to know if Europe falls more than America or emerging markets", or "We should care if emerging market falls more than commodities", or "what is the equivalent event in history and how did that unfold?" He is a naturally more scientific and more curious fellow than I am, and we started to do that kind of research but it sidetracked us from just doing the simple - short some indices. We made about 5% return on portfolio instead of the 15-20% if we just executed the most simple plan. At the end I think the lesson is "is your priority to make money or write a book?" I also found out at the end that our reactions to what had happened was very very very different. My reaction was "I cannot darn believe we didn't make as much, that pisses me off so much, it was so clear Europe was going to fall". His reaction was "There will always be plenty of opportunities, at least we found out which theory was correct". I was even more pissed at his reaction than losing potential profits. That to me was even more surprising. I guess it kind of tells you what each person really cares about. So I think the key here is that if your priority is results, then make sure that never falls off the priority list. There are always a bunch of other stuff that can distract from it - theory, intellectual exercises, curiosity, or sometimes, loyalty to a particular intellectual framework. So another lesson from the Scott vs Admunson trip would be this: just get your results and don't apologize.

With all these theories, there are probably ways to just test this. The result of which could have significant ramifications for how you price things in a movie theatre. Munger has read "the plex" and should really advocate the data-driven optimization approach Google uses to gain insights into how things work. That being said, data mining cannot replace intuition, but still, more tools are available to verify theories today than any point in history.

The part I never understood was while many accuse Microsoft of monopolistic practices, in the book "founders at work" the firefox founder said he was not at all intimidated by Microsoft, and he just decided he could make a better browser. To him, Microsoft was driven by competition, not innovation, and that makes them a lot less scary than people who were driven by innovation. It didn't seem microsoft was able to stop Firefox from being developed. Some genius had the gut to develop this thing, and Microsoft had no ability to prevent him from doing so. Also, what did Microsoft do to stop Google from making a page-rank based search engine? Again, the Google founders didn't say, oh my god Microsoft is out there, let's not do research on internet search algorithms. Same with apple, when they decided to dominate mobile devices, Microsoft could do nothing to stop them. Plus, microsoft STILL HAS A MONOPOLY on PC operating systems. It's just the PC is less relevant than it was before, and Microsoft, in their vigiliant pursuit to protect their existing businesses, became a lot less focused on innovation. I don't get how Microsoft delayed any of these other businesses from dominating their current markets, they merely prevented people from dominating Windows and Office, which are in many ways superior products to their competition. There seems to be the belief that in tech someone like Microsoft can do a lot to prevent innovation, which is very ironic because other company's innovation are clobbering them now. When faced against real innovation, the result has been that innovation won. This has been the cycle for many decades, and doesn't just apply to Microsoft. There are plenty of potential "google killers" out there laboring on front of their terminals. Google can do nothing to stop it.

hrm, but microsoft is a software company, has always been one. Apple was revived because apple went back to what apple was about, it went back to its roots, which was making revoluationary, easy-to-use, seemlessly-integrated hardware+software products. the common theme in this thread seems to be what microsoft should be doing with its CASH, but seems to overlook the fact that its most important assets are its employees and its customer base, just like most software and tech companies. Microsoft has losts its focus on making it a place where passionate software developers wants to come to change the world through software, and really stopped focusing on the user experience. That could explain most of its failures imo. I left microsoft, and many of my friends left microsoft, because the place does not have that vibe anymore. If you ask me whether making 20%/year is more exciting or seeing the result of my work be used by many people is more exciting, it most definitely is the latter for me. Microsoft's first priority should be to gain its mojo back, and become a place where passionate developers want to go work at to create great products for its huge customer base. If it doesn't do that, it will fail slowly. To become a conglomerate and putting capital allocation first, sends such a crappy message to its developer employees. It tells them that the company now cares more about capital allocation than developing great products. I remember one of Ballmer's internal emails that started with something like "as a public company, we first and foremost have a duty to our shareholders..." or along these lines. That did not motivate me at all, I would have been 100x more motivated if he said "as a Products company, our first and foremost duty is to our users". Microsoft needs to pay more attention to its users, then employees, not its shareholders first. That's my 2c on it.

Einhorn's problem is that he thinks Ballmer is not in the same weight class as Jobs or the Google top brass etc, but he doesn't name any ALTERNATIVES。 Just because Jobs/Google guys beat Microsoft (and everyone else) in their respective areas, does this make Ballmer a BAD CEO? I have my own reasons for believing why Ballmer is a bad CEO but firing him is not necessarily the best course of action unless you have a replacement that is certain to be better. Ballmer is bad because he has no vision, unlike BillG. His problem is that his entire strategy for new product areas is look at what your competitor does that gets hot, then copy it, but he doesn't even know how to put himself in the best position to acheive that, unlike BillG. BillG always liked tablets, he was constantly talking about tablets back in the day. Ballmer is too MBAish. He is just not in the same weight class as BillG/Jobs etc.

I think the most interesting aspect is the debate on philosophy: 1) is it worth risking derailing 20-100 students' lives by 2 years, to have the chance to find 1 zuckerberg. Does creating 1 revolutionary company make it OK to risk the lives of many students by 2 years? 2) should the management of risk for EACH and EVERY student be the top priority, versus the outcome of having a rare success. I personally think 1) is better for society in terms of net-net, since it most closely resembles how innovative processes work, with lots of failed endeavors and very few successes. but 2) is better for each individual measured in TERMS OF RISK REDUCTION. If a society were to maximize risk reduction for every member, it would be pretty bad for progress. I think the hero-worshipping and risk-taking culture of Silicon Valley, is still more preferable to the alternatives. Lots of failure is the mother of success. Lots of my Ivy League classmates believe that because they have an Ivy League degree, it somehow entitles them to some high paying job. People should get paid the value they provide, nothing more or less. If silicon valley does indeed have a bubble, then it is one of the better kind: in which new industries are born and better technologies and products are invented and brought to the mainstream. This contrasts with the college bubble: in which you produce and army of people who think the world owes them something. we cannot get rid of bubbles, but we can do a better job of making sure that bubbles produce more useful long term assets than liabilities.

Actually if I were to think from Li's or Klarman's point of view - that of a very capable hedge fund manager - there are as many good reasons to not do this job as there are taking it. The job itself would be essentially similar to managing a very large hedge fund portfolio but there are some cons: 1) You kind of have to follow the culture of Berkshire precisely, which may or may not be comfortable to you. 2) You do well, people expect it. You do less than well, people really turn on you. 3) You are going to be judged not only based on your performance but also having high character and a clean personal life. And this bothers some people who just treat investing as a job and nothing holy. 4) You are going to make less than you would staying as a hedge fund manager, and you are already rich so you don't really need another job. I think this automatically rules out people who are managing multi-billions as there is no way the pay can be even remotely close to managing a multi-billion fund. I can understand if some guy is really rich and can take a 30% pay cut, but if you are going to take say a 50-90% pay cut I think that is very hard to swallow. So this means choosing some guy who is very able but not managing such a huge amount right now, and Berkshire is a step-up for their career. I think when faced with personal decisions like this, it is simply that the pros must outweigh the cons to you personally. These people who Buffett considered have not been his lifelong partners like Munger. They are really just there to do a job, granted a very unique one the privilege of which few others can offer. But none of these people need the money and they have a lot more choices than we do in life. Ever since I earned enough to retire, whenever I consider something to do in life, my priorities are generally: 1) personal freedom > 2) privilege and long-term opportunity > 3) money If you had hundreds of millions or billions of dollars, and already work in an environment that you created for yourself, would you work for ANYBODY AGAIN? These are the kind of choice these people face.