beerbaron
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Posts posted by beerbaron
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Don't f*** with Buffett. He's a nice grandpa but he's not dumb.
BeerBaron
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Last week we had a company meeting explaining that the RMB devaluation should start triggering 3% cost reduction for all our products in a mean term. All retailers are already asking for the discount.
It's fun to see the macroeconomic affect our behaviour in real life.
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West Coast IPA with Citra Dry Hop
Double Stout infused with vanilla
All homebrewed.
BeerBaron
I see you chose your name meticulously. Sounds very yummy. I tried brewing out in my teenage years, I was so bad at it the beer was nearly undrinkable. Obviously being teens we didn't waste a single drop anyway...
Might I suggest you try out a Tankhouse Ale, from Mill St Brewery out of Toronto. So far I've only ever met 1 person at a beer festival who enjoyed it, like me he'd have everyone he knows try it out. It turns out nobody likes it but the both of us who think it is nature's greatest gift to the world. A very polarizing beer I guess, might be worth trying if you ever come across it.
Thanks for the recommendation, I'll see if my local speciality store has it. I'm in Montreal so the choices of beer are not the same as Toronto.
As for the name it dates back from a Simpson's episode when I was in college. Homer started brewing beer in baths because of a new ban on alcohol. In those days all I pretty much remember is drinking beer so I tough the name fit well and kept it over time.
BeerBaron
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West Coast IPA with Citra Dry Hop
Double Stout infused with vanilla
All homebrewed.
BeerBaron
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Well, from my limited understanding of macroeconomic I think Chinese devolution is bad for the US. It does reduces the competitiveness of the US, no argument there. Also it puts the US in a though spot because they will have a hard time raising rates as it will further increase the value of usd. This low interest rate issue will over time fuel bubbles which is very destructive for the economy.
Finally a short term increase in consumption is unlikely to offset the loss of competitivity. From my experience as a product manager, currency fluctuations are passed to the consumer. Tales some time and in happens. Apple is not a good example, their products are not commoditized yet.
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Why don't we all write to the minister of Finance asking for a refresh of SEDI and SEDAR. The company maintaining the servers was awarded the contract in 1996 and never invested a dime since then they just collect random fees since then and invest the proceed in other sectors at very crappy returns. SEDAR and SEDI are just a joke, seriously, look at that old font from the 90's... what do investors from around the world think when they login.
BeerBaron
Whats the name of the company ?
Don't know, I stumbled on it while looking at micro caps in Canada. Needless to say I passed.
BeerBaron
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Why don't we all write to the minister of Finance asking for a refresh of SEDI and SEDAR. The company maintaining the servers was awarded the contract in 1996 and never invested a dime since then they just collect random fees since then and invest the proceed in other sectors at very crappy returns. SEDAR and SEDI are just a joke, seriously, look at that old font from the 90's... what do investors from around the world think when they login.
BeerBaron
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I live in Canada, if I buy US equities thru my retirement account dividends are exempt from the US witholding tax. I believe it's part of a tax treaty between both countries. I did not have to fill in any paperwork, the broker just "knows" not to withhold anything. I would believe that it would be the same thing in the US. It might just be that the persons you talked to know very little about those details. If I were you I'd do a test and buy a dividend stock a few days before the dividend and see what happens when you get your statement. It will cost you 5$ in fees maybe but you won't lose another 2 hours at least.
BeerBaron
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There are very very few true practitioners out there and everyone has a different definiton of quality or moat (most misused and over used investing phrase/concept) so finding "proof" of the concept is difficult. KC has a decent list. I would imagine quality companies have gone out of style during the bull market. For every 100%-200% increase in P&G or PEP there was a 500% increase in CAT and 1,000% in Manitowoc. There is no guarantee that the market will continue to undervalue quality or that the market won't undervalue another stable stream of earnings to a greater degree than quality stocks.
#1 Don't Lose Money #2 Make 15% on capital (I don't forget rules so I have a more relevant #2 haha). Quality stocks just make sense from this perspective.
The leading academic is at U of R (Robert Levy-Marx) and he has a bunch of papers trying to classify quality companies to further narrow his conclusions that they outperform consistently (basically, he argues the market ignores quality, which I fully subscribe to).
http://rnm.simon.rochester.edu/research/OSoV.pdf
My own opinions on quality investing (since it is my preferred strategy at the moment):
The major problem is how subjective defining "quality" is. If you go with pure quantitative research you are going to end up biting on a lot of head-fakes (no different than buying based on stock screener results). Either way, I'm convinced it is by far the most consistent and conservative method (see excel files). I think the best practitioners are stingy with their quality stamps of approval.
I keep a list of quality companies and maintain it frequently. It's currently around 50-60 names, about 50% are large/mega caps and >25% are small/micro caps (I've found that moats tend to be niche businesses or are wildly successful - general outcome is See's Candy or GEICO/Coca-Cola). While researching the company (not numbers, the company) I like to identify:
1) Who is the customer (narrow part of the general, how do they make their money?)
2) How large is the potential market
3) What is their market share (if it is low, why?)
4) Is this a local/regional/national/global market (not necessarily where they sell currently but where they could potentially sell)
5) Has there been any new competition
6) Why do they have an advantage (patent/law/certification/better value/low costs/ect)
7) How much would it cost me to overtake them
I think #7 is ultimately where you find moats. A company with a moat may or may not be excessively profitable at the moment, and probably won't be excessively profitable if it's cheap. If the company truly has a moat then margins/revenue will eventually revert to mean (think MCO/MHFI in 2008-2009 when companies were issuing less debt simultaneously while the MBS market halted - earnings power was significantly greater than earnings at that point).
Quality investing is an art (one I'm trying to get better at, quickly). Any attempt to make it a science will lead you to failure. I think a lot of mathematical methods can be incorporated (such as classification, basic criteria, research rigor) to improve research productivity and standardize your target investments, but ultimately it is an art. My best investments were obvious 10-15 minutes into the research [of the company] and everything after that was confirmation of my suspicions.
The "best" moats have near-100% market share without anti-trust suits. Everyone should be in near-unanimous agreement that this is the best solution to a problem (preferably one that leads to a standardized solution). WD-40, KO, FICO, NKE, ADBE, SLP, ELDO are some examples that come to me immediately as having near 100% market share in their various niches (whether locally, nationally, or internationally). Growth comes from pricing power which can be extremely predictable and almost always surprise to the upside (McDonald's goes from $1 menu to $2 menu).
What is a "quality" company? It's easier to start with examples:
Government approved monopolies are a great place to start:
* You need to research why the law exists?; does it still provide the value intended?; what is the outlook or environment like?
- MCO/MHFI
- MLB/NFL/NBA/NHL
- Companies benefiting from the Jones Act
- SpaceX: They are only going to let certain folks launch rockets
- SIRI: Again, there can only be so many satellites and it's not the easiest approval process [unlike managing money :)]
- Every company that relies on patents (whether normal FDA drug approval process, orphan drugs, device makers, non-healthcare companies, ect)
* These are temporary and they generally lose excellent ROIC within 1-2 years post-expiration
- MON: Sometimes change happens so fast (and predictably) that patent expiration is less of a worry. Monsanto has biological effects on their side as their seeds tend to change the composition of the soil such that you can only grow MON seeds the next year (quality investing is littered with companies of questionable ethics)
-- However, gambling is an example of how quickly govn't approved monopolies can go bad. As Munger often says, follow the incentives. Every state watched as Nevada funded their entire budget from a single street in Las Vegas and envy leached all the profits from gambling everywhere. Stability is more important the depth or breadth when considering an economic advantage.
Semi-government monopolies or Problems that required a single solution (all companies solve a problem; is the problem meaningful and is the solution elegant?):
* This is the good stuff! Find companies where their product/service is geared towards something 1) necessary or consistently in-demand. Often, where the problem of (1) leads to a shared or non-unique solution that 2) significantly improves the experience of (1) [huge value-added product/services - e.g. KO improves drinking, P&G improves hygiene,
- FICO: Creates the "standard" formula for credit checks (and to some degree, background checks)
* The average person is not comfortable thinking in ranges. A single number is necessary in a lot of parts of life that are truly ranges. Generally, this results in a strong business or monopoly for the last company standing in these situations.
- EFX/TransUnion/Experion - Everyone needs background/credit reports
- AXP: creating a payment network is difficult (chicken and egg problem). AXP created one tailored for the upper-class by adding discounted premium services
- CLB: Extracting oil is difficult. CLB has the best solution that had enough breadth to turn a fragmented software market into a monopoly
- MA/V/PYPL
- OTCM
- SLP
- TDG: This is more semi govn't approval. The certification process is so expensive and long that most parts are minimally profitable (most aircraft designs are not as popular as the Boeing 747, for instance). TDG identified the best value aircraft designs and received sole-approval for the majority of the parts for those designs. This gave them access long periods of monopolistic markets. This spills into management capability and other aspects.
Network Effects (They built it, people came, and now every new customer has no choice but to join the network):
* To claim a company has network effects, it should already have at least a majority market share (>50%) as the pricing power before market domination is minimal or they are price taker
- Ebay [Marketplace]: The original network effects poster-girl.
- V/MA/PYPL
- CME
- CHRW: Gaining market share every year as the market goes from a word-of-mouth business to CHRW becoming the ebay/craigslist of trucking. Exception to 50% market share rule as they dominate in market share (>4x closest competitor?)
- FB
- TWTR/SnapChat/YouTube
Other types of moats that are possible. Just because Morningstar lists some ways for moats to form does not mean that these are exclusively the only ways. There is also no implication that a moat exists because a business has a similar business model. Every company & market is unique [mathematical definition]). Some less profitable ones include:
- High-Switching Costs (I think this is a pretty poor moat-type as it implies that there is a possibility that an inferior product may has a long-term advantage). Switching-costs are always dynamic and volatile.
- Patents, mentioned above, are generally temporary
- low-cost provider; if the gap is not substantial (almost always due to a structural difference in the business model), or the market is not sufficiently large, or if the market is not stable or necessary
- Brands; either 1) pricing power, or 2) sustained price premium must exist for the brand to be any different than the "brand" of a private label. The pricing premium should, by rule, not be due to the increase in marketing & advertising.
Other [Good] Moats:
- Business models that try to capture the area above the supply curve (see below)
* EA has added the "Ultimate Team" mode which allows players to spend USD to buy virtual packs to improve their teams faster than other players. This allows some players to buy the game for $60 as normal while other players can spend upwards of $2,000 on a game. This new mode which drastically altered their revenue streams has allowed EA to capture as much $ as folks are willing to bear.
A lot of quality businesses are due to incentives. If everyone is incentivized to use the same product/service and the reason they need to use this product/service is because of something sustainable and incredibly popular/fun/necessary, then you have the recipe for a great business. I have always found illegal drug markets to be incredibly interesting because of their profitability stereotype. A general rule of thumb, you want your business to be more profitable than selling drugs (high-margin/high-turnover businesses cough up more cash than the plague).
Articles about moats:
http://www.morningstar.com/InvGlossary/economic_moat.aspx
http://corporate.morningstar.com/US/documents/Indexes/What-Makes-A-Moat.pdf
http://news.morningstar.com/articlenet/article.aspx?id=91441
http://www.suredividend.com/17-of-warren-buffetts-best-quotes-analyzed/
http://www.cognios.com/documents/fidelity-201308.pdf
http://online.barrons.com/articles/small-cap-stocks-beat-the-market-nyu-study-finds-1421960412
* There are much better articles, these are basic info.
The excel file show the results of compounding over time. It just shows compounding is not proportional (even though we estimate it is when discussing current yields between a quality company [which may partially compound] and an undervalued average business). If you can find quality businesses that compound even 50% of their annual earnings, consistently, you have something great (almost regardless of multiple - TDG is compelling at 20x - 30x)!
How about the low cost operators? It's one hell of a moat too.
BeerBaron
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This is one of my all-time favourites... One can you think that Varoufakis was not full of shit? The guy promised three days ago on BBC that the negotians would be resumed on Monday "With 100% chance of success" and that "banks will reopen for sure on Tuesday". now that the got what he campaigned for, he just disappeared.
Well... nobody asked him what was it's definition of success.
BeerBaron
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Yes there is, every state has their own regulations depending on the types of insurance, risks involved, etc...
BeerBaron
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Even bettern than data. Attached is a picture of Rotterdam before and after the war.
BeerBaron
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I've seen several NPV tables at say 5% and not sure if these calculations include
a) sustaining capex of the project and
b) has added the net asset value of the company at present (e.g. assets minus liabilities).
c) the initial capital cost of the project.
If it includes a) & c) and not b), you would have to add the NAV to the sum total of future cash flows?
What industry are you referring to? Any NPV table should define the cash flow stream and the assumptions involved.
The 5% is the discount rate. The NPV is the net present value of the cash flow stream. If you want "Net" asset value, deduct the liabilities.
Of course an NPV has a, b and c. All cash inflows and outflows are taken into account in an NPV. This is the only theoretical model that makes sense. Too bad it's impossible to use for most companies.
BeerBaron
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Every time someone tell me "They say the Canadian dollar will do X in the future" I tell them that there is a 50% chance that the person who said it had the right direction. I don't see who in their right mind would try to forecast currencies, forecasting a micro cap is hard... so how hard do you think it is to forecast a country's economic performance.
Then only thing I would use as a proxy for currency would be futures, I don't have the confidence that anybody can beat a well established market like a currency market in the long term. I do believe that in that case, the market is pretty efficient. If you can't beat them, join them.
BeerBaron
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Not sure how you calculate it but cash flow from operation is almost meaningless for insurance companies. If I were you I would seperate the insurance from the other two groups.
BeerBaron
At the risk of sounding ignorant why is this exactly? Thanks
Take Fairfax cash flow statement, in 2014 they reported Net Earnings of 1.66 Billions but if you look at their cash flow statement you see that their Operating Cash Flow statement is -70 Millions. If you look at the constituents of the cash flow you can see 1.74 Billions from investment gains substracted from their Cash Flow. That is because those investments are earnings but since they have not sold them yet it's not a cash in flow. It's also the same when they make an investment, it takes out their cash flow but really has not much to do with their operation.
So why are these investments appear in the cash flow part and not the investment part... because investments are part of insurance companies operations.
BeerBaron
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Not sure how you calculate it but cash flow from operation is almost meaningless for insurance companies. If I were you I would seperate the insurance from the other two groups.
BeerBaron
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I love Buffet but gees, he's like a politician with a playback button.
What will advance American competitiveness in the next 20 years? What are the biggest threats to
that competitiveness?
There is an abundance of information available these days, which is amazing. It’s important to realize
that everyone in this room is living a better life than John D. Rockefeller. In the next 20 years, we will be
living incomparably better lives than we do now. I hesitate to think about the service my dentist
provided me 20 years ago. At the same time, I’m sure that in 20 years people will feel the same way.
The drawback of growth, however, is that evil can leverage this progress to harm a significantly greater
proportion of the population. I see the biggest threat to American competitiveness as represented by
the acronym CNBC, namely Cyber, Nuclear, Biological and Chemical. By far the greatest threat to
humanity is that of a Nuclear war. If I could allocate all my resources to effectively combat this threat, I
would. Unfortunately there are very few effective channels that could effect this change.
What customs have you witnessed overseas that American businesses should adopt?
It is important to play with better players than you. The US is the best place to operate and you don’t
need to go beyond the US. It is easy to see success but it is more difficult to repeat the success. It is also
important to study failure as much as you study success. In general, I find it very interesting to observe
the market every day. For instance the 2008 crisis was a great movie and nobody knew how it would
end. In my opinion China has changed their system to be more “US like”.
??? Did he even listen to the questions... I'm wondering he he gives a proper answer in a one by one with a friend.
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I think that the worldwide commodity price decline could finally be a trigger to a credit/housing crisis in Canada. Canadians, have a look at this interview with Richard Koo:
http://www.macleans.ca/economy/economicanalysis/is-canada-at-risk-of-a-balance-sheet-recession/
Thanks, that was a good read.
Agreed, thanks for the article.
I've been waiting on the sidelines (renting) for years. I definitely think we're a bubble and I hope it pops soon. Any ideas on how you could make money on the short side? I looked into shorting the non-government mortgage insurers, but decided against it.
I've read that shorting the Canadian banks is the way to play it.
Are there listed Canadian home builders? It's not specifically a housing bet but I think that Canadian government bonds are a good one if Richard Koo's scenario plays out (and even if it doesn't), especially the long end of the yield curve, e.g. ZFL.
I used to own a land developer back after the crisis. Melcor Development. There are a few others as well, some horrible companies under the REIT umbrella.
BeerBaron
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I own a Z10 and I love it, the Android emulation works very well for all my applications. Overall, I would give it a 9.
BeerBaron
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Legalised front running. Good explanation.
BeerBaron
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I don't know about France but usually an insurer cannot get rid of a bad set of policies by spinning, giving or selling the company. It happened with Kingsway a few years ago, they tried to give a whole insurance company to charity and it was stopped by the legislators.
This is a funny story, glad I'm not an Aviva shareholder.
BeerBaron
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Still overpriced. :P
The title is the best part of the book I heard.
BeerBaron
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You seem to be blurring the distinction between QE and national debt. In QE the Fed is buying assets (mortgages and bonds) and "borrowing" to do so. There is huge liabilities but also correspondingly huge assets. It is largely a wash except that the purchases are assumed to eventually result in a modest loss. Secondly, correct if me if I am wrong here, but the Fed is creating money at zero cost such that the liability side has a zero cost of funds and the asset side is earning something. Thus theoretically the Fed is generating a profit for the US at the same time it is stimulating the economy.
The national debt is obviously different - the cumulative effect of borrowing to support current spending. While a serious problem, it is not growing as rapidly in the last few years.
I would be careful in using the analogy of a person living beyond their means. There are important differences, for example a person cannot raise their income while the US can by raising taxes.
Thanks for the clarification. Can someone else explain to me the national deficit? preferably with some concrete numbers?
The answer to your question is another question:
What do you want to include in your calculation?
- Federal debt?
- Federal entities deb
- Federal pension plan liability
- Federal Mecidaid and Medicare liability
- States debts
- States entities debts
- States entities pension plans deficit
- Cities debt
- Cities pension plans deficit
- Other liabilities (promised guarantees, etc...)
- Federal debt?
Historical closing price for metals and materials
in General Discussion
Posted
I'm looking for a free source of historical data points for the closing prices of various metals like steel, copper, oil, etc... I know London Metal Exchange offers free charts but I can't seem to find a free source for the historical data. Anybody has a good source to provide?
Thanks
BeerBaron