alwaysinvert

Gone from +20% to about break even in last few months, partly due to thumb sucking on one stock, which I definitely should have sold. Hope I can draw some lessons for the future from that, at least. BRK, in spite of its fall, has been what has held my portfolio steady in the latest downturn due to the strong dollar as of late (denominated in SEK). I, as much of the rest of the board, feel drawn towards some American large caps at the moment but hesitate due to tax reasons (extra dividend tax). My thinking was to play them with LEAPS because of that, but it seems very hard for me to get to buy them from my geographical base.

Australia is not alone: http://opp.org.uk/news_article.asp?id=5333 http://1.bp.blogspot.com/-RuP8-qDDInM/TY2bbNBtdFI/AAAAAAAAFOU/K8ZO9uHopnk/s400/se_credit_growth.png http://4.bp.blogspot.com/-zSeGy8uSouk/TY2cTXWPW5I/AAAAAAAAFOc/5jM3ppwi97Y/s400/se_lending.png

Devaluations to prop up exports is nothing new, loads of countries were doing it in the interwar period. Arguably, the ones printing the most money did not emerge as the winners back in those days. I think a sound monetary policy based on a long-term view will win out in the end. Don't forget that most of the share of German export goes to other countries in the eurozone, a zone that has a customs union... So raising tariffs would be a possible way to deal with it (I have no clue on the likelihood and I don't think it would be a good idea, but anyways). And obviously, Germany's own market is not negligable in buying power, as opposed to that of the Asian manufacturers. Looking back on the monetary policy of France, Italy, Spain in the decades before the implementation it was nothing short of catastrophic... So here's hoping that Germany will keep a tight grip on the ECB for years to come, otherwise we are in deep shit.

Oh, they fared pretty well during the 80s when most European currencies and the dollar were devalued 40-60% against the DM...

Perhaps the Europeans here can provide a better answer but I thought that the EU was primarily about expanding the political power of Germany and, to an extent, France. The Germans were prepared to sacrifice financially so that they can eventually control a larger political entity, the United Sates of Europe, that would be comparable in size to the USA. Isn't this the reason why they continue to support the basket countries financially? Well in short, you are a bit off. That is not the historical reasons for the different organizational frameworks starting with the ECSC and ending in the EU. The reason for the ECSC was actually 95% financial for Germany and the rest of the members (the original six, Benelux and Italy as well) with a touch of reaching for lost political power from France (something that has come back to haunt the Union with the consensus decision making effectively blocking every chance of reform of the Common Agricultural Policy, with France's implicit veto in power). After WWII there was a ceiling on German industrial output because of the fear that they might otherwise be used for war purposes. In order to work through the technological backlog and catch up with the lost years that would have to be addressed to make Europe as a whole grow. This was solved by tying up the coal and steel production of France and Germany against each other and enacting currency convertibility via the partly US funded European Payments Union. All of which was a foundation for the Single market (that is free movement of capital, goods, services and people in the Schengen area). For historical reasons Germany's reach in the EU is mostly on economic and monetary policy (with very strong proponence of a low inflation rate, think Weimar hyperinflation). France has an unproportionally large say in the union compared to their population and they have been the main agenda setters from the get go, not Germany. And Germany has most certainly not suffered financially from the integration of Europe; rather the other way around, they have probably been the biggest winner of them all.

Shrinking the euro zone would be a good start. France, Germany and the Benelux countries actually make up a pretty good area for a currency union and hardly makes less sense than the Eastern Bundesländer sharing currency with the old West Germany if you look at the homogenity of their demographics, politics and economic policies. But the political reality of Europe is a thing far removed from economic theory (or even economic reality, heh) As for the comparison with the US, that is not very apt. The EU is a confederalist organization and not meant to be a federalist one (even if many politicians have wanted and want to move in that direction), and walking away is hardly as easy as you make it out to be. Most countries are very dependent on the EU for political shelter, especially the newer ones. Estonia is not going to leave the EU or the EMU for economic reasons even though you could make a compelling case that they would be better off with the restrictions imposed by CAP and other bizarre EU programmes. I visited Estonia some time after the Russian invasion of Georgia and the population was absolutely convinced that they were next on the list (a crazy thought near term, obviously - but maybe not so crazy long term). Getting closer to the EU and the West at the cost of some growth seems a bargain deal when faced with that reality...

I haven't got anything more insightful than this: http://www.ft.com/intl/cms/s/0/f3f54cd6-7b36-11e0-9b06-00144feabdc0.html While I think disintegration would be the best course of action, due to the eurozone being a madness of a currency area, at this moment in time it's hardly politically viable that countries would leave EMU. But who knows, stranger things have happened.

Kinnevik was just what I was going to suggest when I saw the title of the thread. I don't know if you have any requirements on size, but checking out Öresund might be an idea too. Good long term track record and have always traded at or above NAV before, but was struck by a catastrophe last year. One of their core holdings HQ Bank had violated reserves rules and lost their banking license, causing them to go bankrupt. I could elaborate further on the implications of that if you find the company interesting. They now trade at a discount to NAV of roughly 20%.

BRK B vs BRK A must be the greatest long/short position in the history of mankind :)

Well, the founders (Friis and Zennström) still have part ownership. And from what I hear, a job at Skype is really attractive and they have a rigor in their hiring process almost approaching that of Google, which would suggest high supply of labour... I think you are wrong here.

+1

I thought it was hilarious too. Apparently, the guy who plays Hayek is an Austrian economist that has weekly podcasts, which explains why Keynes goes down in Round Two. Very funny, though. Bailed out by the judge, obviously :)

7x book and 22x free cash flow? Seems awfully pricey to me. Yes, like I said it's not classic 'cheap' value case. But the question was not of the overall best opportunity around, but a company that I would be the most comfortable in owning for 5 years. With that said, it is my second largest holding. With the huge gap between net inflow (which is trending upwards too...) and current market share, incoming higher interest rates which will positively affect their earnings (Sweden is doing extremely well in an international perspective and rates are expected to rise sharply), their market position and their past record, I think I can motivate the valuation pretty easily. Of course, it's harder for someone who's not from here to value the intangibles and I'm not sure that I can paint a fair or even slightly useful picture of that here. The Swedish stock market overall seems quite a bit pricier than in the US, though, so it seems likely that there are opportunities which are way more attractive to you guys that I really can't get a grip on from way over here... Time will tell if I am right or not, I guess.

Please do elaborate. I'm going to study this Ok, some general points on the business off the top of my head, then. The CEO of the last 10 years is stepping down sometime in the coming 12 months. The stock plummeted 10% when the news broke a couple of weeks ago. I have met the man in person and he is one of a select few that I have been in complete open awe of. He is an amazing indivudal, and it is correct that the stock took a hit from that news. While he has, of course, been instrumental in many ways in the building of the company, he had in his own words made himself obsolete. As long as they don't bring in someone who disturbs the culture (which I absolutely think they won't do) I think they are going to do just fine without him too. Their greatest selling point to more 'hardcore' customers has been an index fund completely devoid of fees, called Avanza Zero. As far as I know it is one of a kind globally. As of the 31st of December they had 236 000 customers of which 71 000 had Avanza Zero holdings in their account. The marketing of this fund has almost been completely viral and you can see the buzz about it throughout the internet. The internet brokers have also in many ways pioneered an account ('kapitalförsäkring') which has a flat tax of about 1% on the total sum in the account every year, instead of the usual stock accounts (with winnings taxed at 30%, no matter the holding period). The old banks have had these accounts for a number of years before, although with fees and a number of constraints on withdrawals. They have been highly benificial for investors but will be 'realigned' (that is, translated from politician speak, the tax rate will rise to about 1.75% a year) from 2012 on. It is possible that this will affect the inflow to internet brokers negatively. In addition to index fund, they have another peculiar product, which was aimed at putting their hoards of cash at more work. It's called the 'super loan' and is a loan at a very low rate which can be taken against holdings in certain highly liquid Swedish large caps, if you hold at least three such stocks with somewhat equal weighting and the amount of the loan is not greater than 35% of the total value of these holdings. This has not gotten that many customers, but is something that is very favourable to savers at very low risk. If the holdings decrease in value, so that the loan exceeds 35%, the regular rates kick in. They also have cooperations with other banks to be able to offer higher interest rates on savings and moreover allowing people to make use of the €100k government guarantee per loan institute several times without moving the money away from their interface. In short, they are a very innovative company and even have their own version of Google Labs where everyone with an account can go in and make their own suggestions on what to improve with the site. I think that there are considerable barriers to entry in the business, though. No competitors have entered for many years and Storåkers, the CEO of Avanza, has expressly said that with all the new regulations that has come through since Avanza started some 11 years ago they would have found it hard to even start the same business anew today (!). While their main competitor makes money too, they are way behind Avanza and has actually been contracting in the Swedish market for a while now (Avanza is focused solely in Sweden, while Nordnet has operations in other Nordic countries). Phew. That was a long rant :)

I'm going out on a limb and naming a company which is not all that 'cheap' on a pure p/e basis: Avanza Bank. Financial data here: https://www.avanza.se/aza/omavanza/doc/Avanza%20Key%20Data.xls Quick outline, I'll elaborate if anyone is interested: - No credit losses - No trading department - Non-brokerage income covering all expenses (and that income will increase in tandem with coming interest rate hikes) - Savings market share of 2% while having a market share of net inflow of 6.2% - Great culture, chaired by a famous Swedish capitalist named Sven Hagströmer, who has a huge Buffett complex, and also happens to control the company via his investment company. - Basically all earnings are free cash flow, they pay out all their earnings in dividends. Growing the business is crazy cheap. - Huge operating margin of 54% despite having considerably lower prices than the 'old' banks. - They are, bluntly speaking, crushing their main internet-only competitor Nordnet - As can be seen by their figures of 2008 (the year in which I started buying shares), they make pretty good money even in an extreme downturn scenario. Despite sporting almost double the earnings multiple to when I made my first purchases, I have bought at current levels too. Even if the price doesn't quite fit you, I think this company should be on your radar :)

I like Frankly Speaking and Barel Karsan, in addition to the once mentioned above. And here is my own blog in a google translated version :): http://translate.google.com/translate?js=n&prev=_t&hl=sv&ie=UTF-8&layout=2&eotf=1&sl=sv&tl=en&u=www.vardeinvesteraren.nu

Yeah, I mean if I owned comfortably profitable business of some size I think paying at least 75% would make great sense. Didn't Buffett buy a shell like that at some time? Of course, the value of the assets should maybe be discounted MORE when they are running a profitable business in which it will take years to make use of them. OTOH, I guess you could argue that the assets make the company more attractice for an acquirer to the same extent regardless.

Value it as it will be used. Take pretax profits and use those vs. aftertax profits. I dont like assigning a value to them like they can be turned into cash. Ok, that is what I am leaning towards, too.

I'm sorry if the same thing has come up before, didn't think of searching. I will do that too. It's a newly spun off micro cap that's quite illiquid, and while I don't think most people on the board even could buy it if they wanted to I'd prefer to keep the name to myself until when/if I have done my business. I will of course happily name it afterwards if there is any interest. I am fairly sure that they will be able to use the tax assets since the losses are inherited from the mother company, which is in a more speculative business and has been more volatile. Normalized operating income for the last three years is about 25% of the tax assets. Pro forma ebit earnings for 2010 are 25m. As of today they trade on a multiple of 8,6 to that. They have in total 82m of deferred tax assets but only take up 21m of that in the pro forma balance sheet. I can't seem to figure out the rationale for that since there is no time limit on using it and they have been comfortably in the black historically. IFRS states that you can have it on the balance sheet if there is a reasonable chance that you will be able to use it in the future, no?

How do you go about valuing it? Do you do a DCF on 'normalized' earnings or just some kind of shortcut, for example stating that it's like 70% cash or something? Or do you perhaps incorporate it in your earnings multiple? I'm trying to value a company that has lots of deferred tax assets, representing about 1/4 of the market cap, and that has been profitable for 5+ years. Grateful for any input.

It's important to distinguish between the traditional bookie operating online, and the likes of Betfair. The traditional bookie competes with other bookies on over-round. The lower the over-round, the less profit the bookie makes and the more risk he is exposed to (it's basically the insurance game without the ability to invest float). Betfair is different - it doesn't care about over-round. In fact, it would actually want the over-round to be non-existent, or at least negligible. Remember, they take their cut from each transaction - therefore the greater the volume of bets being place, the more they make. This also explains why they have a near monopoly position. If you place a bet and you're looking for the best odds, you have to go to Betfair, because they are the only company that has the liquidity to get your bet matched. It's a vicious circle for competitors trying to compete. If they want people to use their exchange - they have to offer liquidity; however, because they're a new competitor, they cannot offer the liquidity, because they don't have it, more customers are even more driven to Betfair. A lot of competitors have tried to compete with Betfair (Betsson, WBX, etc.) but they have all failed and had to close down. Even when these guys reduced their commissions, they still couldn't compete with Betfair, the inertia and liquidity that Betfair had was too great. Like you've stated, the big challenge for Betfair is more likely to be legislation rather than competition. It's a great business, a little expensive right now. So I guess Betfair is starting to look really interesting now? :)

Slightly off-topic but anyway. Would be very interesting to hear more about this. What was the main things that you overlooked etc? I have a similar situation to OP, but at the same time very different. Young (22) but have a large pile of savings, though not a great prospect for earnings, aside from cashflow from that money, for the next 4-5 years, while I get the education I pushed forward to be able to make money in a short window. Balancing spending and saving is tricky. I am afraid that I will regret my decisions no matter what I do. But being extremely well-off at the age of 35-40 seems like a goal that I can sacrifice for at the moment.

If there is more to tell that hasn't yet become public and would portray Sokol in a better light, why has this not been revealed? I just can't wrap my head around why there would be any non-public information that would make Sokol's actions look better. That would be extremely illogical, both from Buffett's, Berkshire's and Sokol's point of view. So to me your stance seems like a cop out.

Thanks for all the podcast recommendations. I started listening to In the Plex yesterday and it's very promising this far :) Will def check out the Betfair book too!

I live in Portland, OR and get these kinds of books (including the Steve jobs biography) from our library system all the time. I can request interlibrary loans online from their website, which means I can get pretty much any book in publication at no cost. The only book I've ever requested and not received is klarman's margin of safety. . I can also access value line and morningstar paid sites through the library website, as well as a very good selection of audio titles. I don't know if this is an amazing exception to most library systems in north America or not. Maybe worth a look at your local library system? I don't live in the US, so sadly that option is not there for me. Guess I can console myself with the fact that the eventual knowledge I gain is cumulative and hopefully will prove to be a good investment. If not, then I at least had a good time for the money I handed Apple :) Thank you very much for that list, hpmst3. I think I will start by downloading the quant book right away, seems right up my alley.