JSArbitrage
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Posts posted by JSArbitrage
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To echo and perhaps expand on winjitsu's point:
To have a seriously durable competitive advantage in such a large market - a business model that is essentially a toll road for restaurant food delivery... think about how incredibly valuable that could be once the market has matured and cost of customer acquisition falls.This is the key point, isn't it? A couple of questions:
1) For most moat-y businesses, do they have to pay their customers to choose their business?
2) For the ones which do, in fact, pay their customers (perhaps just initially) - what do those businesses look like?
In my opinion, for (1) most moat-y businesses do not need to be acquired. You are offering something so special that competition is limited. Either you have some special process to offer sustainably lower costs (i.e. best commodity producer) or you are so differentiated that you are offering a special product (brands, etc.)
Now, yes there are some businesses where you pay to acquire. The question then becomes, which are successful, and why? I would argue therefore the response to (2) is that you are building yourself into long-term customer processes, with high switching costs/specialized service, and a high natural relationship length. It becomes uneconomical to pay for customers if they can just hop to a competitor (low switching costs) in a month (low relationship length).
My problem with the VC world (and perhaps I am wrong) is that they over-estimate their competitive advantages. I am sorry, but food delivery is not a competitive advantage. And access to capital is almost never a competitive advantage. Real competitive advantages come from high skilled activities at least in most cases.
I think there is potential for significant competitive advantage in creating a network that makes delivery better, if it makes delivery better. Despite what some might argue, I am probably never going back to ordering a taxi because Uber/Lyft are so much more convenient that I would probably pay a premium to a taxi. Uber/Lyft made transportation a better experience IMO. They also made the driver experience better by making it a more flexible job, eliminating expensive medallions, etc.
The open question for me perhaps is how are the food delivery services making the experience better than the status quo? Is calling up my favorite restaurant and going to pick it up that much different than having someone deliver it? I see the two-sided network effects very clearly with something like Uber, but food delivery not so much, especially if restaurants are eating the delivery cost. It is at best another form of advertising for them in that world.
What makes Uber better than a taxi? Uber is a taxi service with an app. There is nothing more to it. Uber is just the app-ification of a service that's been around forever. The Uber business model wasn't related to network effects (even if they claimed that), it was about just subsidizing rides relentlessly to get to a scale that local laws didn't apply to them anymore. In fact, if you read about Uber, everyone can see the network effects never existed. Even small price increases (or smaller subsidies) causes Uber to lose market share.
I would argue Uber just took advantage of another Silicon Valley business model - ignoring regulations. Like how if you throw a Coke can on the ground, you are littering. If you have a scooter company where 10,000 scooters are thrown on the ground, you're a mobile transportation company.
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Great answers from everyone. One thing I will also add is that, in my experience with convertible prefs, management teams view this (ever optimistically) as a way to essentially issue equity at above market prices. CAKE might have not issued equity because they believe their current stock price to be too low or secondaries are hard in this market so they looked to a structured deal to issue a lot of equity a bit above their current price.
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Energy prefs and debt.
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DCP Midstream Series B Preferred look interesting
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only 6% of the wealthy (north of 500k$) got their money from inheritances. According to a survey by PNC wealth management. Shouldn't this be more by now? I guess the posters argument is that three things will happen to a inheritance.
It will be invested, which is good. It will wither away , so inequality goes away, or it will be consumed. Also good for the economy.
I think crafting unearned wealth inequality as inheritance is a bit misleading. For example, one could say that Bill Gates is self-made; he received no significant inheritance and went into an industry completely different than that of his father (attorney.) But one could also argue that his parents have a huge impact on his trajectory. His parents even paid for a prestigious, expensive private school that had a computer in the 70's (which was insane at the time.) Bill's father even wrote a book on parenting.
As for myself, I sometimes think about how much of "me" was baked in many generations ago. I had parents that were upper middle-class, purposely moved across town to get me into the best public school system in my city, always came to my sports games, spelling bees, etc. Their parents were educated immigrants from Germany who could claim to have come to the US with nothing in their pockets (true) but were also quite educated for their day in Germany (also true.)
When I think of wealthy inequality, I don't think of the Rockefellers. I think about all the children today that have a really strong headwind while I had a strong tailwind.
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This has to be a troll thread.
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Being a good investor has little to do with being intelligent; it's much more important to have the right physiological makeup. The reason so many great investors have Ivy League educations is because they had access to individuals with capital (rich alumni) to start funds, not because you need Ivy League level intelligence to be a good investor.
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Most of this is factually incorrect and is just fear mongering to get votes: http://www.factcheck.org/2015/09/stretching-facts-on-syrian-refugees/
Pretty much everyone in America is either an immigrant or the decendent of an immigrant. As a result, pretty much everything good and bad in America can be blamed on immigration. Steve Jobs' biological father was a syrian refugee. Immigration in America is an interesting issue; personally I think the #1 factor in America's long-term success has been the ability to attract and assimilate immigrants. The branding of "the land of opportunity" and the "American dream" have been tremendously valuable. Yet, at each point in history people have feared immigrants, whether they were irish, italian, russian, jewish, what-have-you. I'm sure some people move here with ulterior motives, but every immigrant I've met has moved here in search of a better opportunity for themselves and their families. As Buffett would say, we won the "ovarian lottery" by being born in the United States with the opportunities we have.
Morally, if someone's life is threatened in their home country I think we have a responsiblity to try to help them. That's how my family ended up here and I'm thankful for that. If that person's life is endangered as a result (in some percentage between 0% and 100% depending on your views of the specific location) of failed US foreign policy that moral responsibility is amplified.
On a side note, grouping France, Russia and the US in the same bucket here doesn't make a whole lot of sense to me. My understanding, which could be wrong, is Russia is backing Assad, while the US has backed the Free Syrian Army (against Assad). If we want to "donate" weapons to people, let's think first about where those weapons are going and how/if they can be used to better the situation. There's at least a rational argument that if less weapons were "donated" to the region, the number of refugees would be significantly lower.
I completely disagree with your analysis. All immigrants aren't equal. If we assume that the Syrian refugees represent an average sample of the population, you'll find some disturbing trends. For example, in Syria, only about half of men is Syria believe that women should be free to choose what job they want. Only around 33% think women should be allow to initiate a divorce. Syrians have an extremely backwards culture compared to the West.
I understand the belief that we should help people that have been negatively impacted by a war over which they have no control - but that doesn't mean that those people are morally good people. Or that they should become Americans. Or that they share the values of women's rights, human rights or the right of people to choose the life they want you to live. Many of these people would tie a women to a tree and stone her for divorcing her husband.
So to make the argument that "well, we let in a lot of Irish, therefore we should let in a lot of Syrians" is silly. Would you rather declare yourself an atheist in Ireland or Syria? One place might look at you funny for not being Catholic; the other will drag you through the town square.
There are literally millions of people all over the world that want to come to the US - why bring the ones that have a culture that is stuck in the Dark Ages?
P.S.- But I do agree the terrorism fear is overstated.
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I think the Buffett/Munger view of concentration has always been more of a philosophical view and not a practical one. They've actually been really good a keeping a diversified portfolio for themselves on a "look-through" basis. Buffett owns his home outright (paid cash), his Laguna Beach vacation home, kept a personal investment account outside of BRK, usually had generals, special-situations, cash, etc. until BRK was quite large. Buffett has been a mult-millionaire outside of BRK for a really long time. I think Charlie had money in real estate during the early days of BRK as well.
I think people need to be careful when listening to people that are multi-millionaires even if their entire stock portfolio would go to zero. There is a big difference between someone with a $100M net worth putting 25% of their money in 1 stock and someone worth $100K putting 25% of their money in 1 stock. Especially individuals like Warren/Charlie would either (a) are or (b) have influence over management.
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It would be much appreciated, if a fellow board member would provide a link to a website explaining the US estate tax on the rim. It's important for non US residents board members understanding of what's going on in this topic.
Thank you in advance.
Basically, the US has a tax on the inheritance of large sums. If you are rich, the US will not simply allow you to give your wealth to you heirs when you die without paying a tax. Some of the reasons are philosophical (preventing the accumulation of dynastic wealth - aka the Thomas Jefferson argument) and some are practical (dead rich people have no need for money anymore.) Some people disagree with this tax also on philosophical grounds (general aversion to taxes that specifically target the wealthy) and some are practical (heirs might have to sell family businesses, real estate, etc. to create the liquidity required for the estate the pay the tax.) The tax only effects the marginal value of the estate above $5.5M dollars but the tax rate is quite high at around 55%. So it doesn't effect 99.9% of Americans but it can have a large effect on those estates that are asset-heavy and cash-poor like a family farm or a valuable piece of real estate.
TL;DR - The US taxes dead rich people. Some people like that. Some people don't like that. Either way, if you are affected by it, you are probably doing pretty well so it's only a debate rich people and people who like to debate policy generally give a crap about.
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I personally am not opposed to leverage. I think of it this way: If you would borrow money to buy a house (mortgage) why not borrow to purchase an index fund or BRK stock. Both are just as safe as real estate investment and the returns are greater. But I am fairly inexperienced with leverage and would love to hear from others.
I don't think Warren doesn't like leverage. It's just "good" leverage isn't really available to 95% of investors outside of real estate.
So, in your example, if someone was willing to give you an 80% LTV, 30-year fixed rate loan at <4% pre-tax with which to buy the S&P500 index, Warren would probably advise you to that loan and buy that index and sit on it.
The issue is that margin loans are callable, have variable interest rates and are typically short term. To use THAT kind of money to buy an index is nuts because if the index drops by 50% the next day, your broker will call more capital or force you to liquidate. With a house, you can live in it for decades and the bank can't do anything about it. You don't have a "duration match" issue.
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If you are doing international travel, I would get the Barclay's Arrival card:
http://www.barclaycardarrival.com/arrival-plus/?campaignId=1729&od=bcarrival&cellNumber=24
It is a true chip and pin card so it will work everywhere in Europe and no foreign transaction fees. Its a Mastercard too, so you should have no problem with the network.
It is a points type card, but it's not hard to keep up with. 40,000 points when you spend $3k in the first 3 months. 2% back on all spending and a 10% bonus if you use your points to pay for travel (becoming 2.2% cash back on all purchases.
Use the card for most everything, then book a few airline tickets for free each year. Fee is $89/year waived for the first year. You don't need a Barclays bank account.
There is also Barclay's arrival card that has 1% back, but no annual fee.
I am CC'holic. Fidelity Amex for 2% back, Chase Freedom and Discover for 5% categories, Barclay's and CapitalOne for international no-fee (and CapitalOne gives 1.5% back), United Explorer for United perks + international no-fee. Plus I usually get new cards that promise $200-500 sign up bonuses. Cancel them later. I guess my credit history suffers a bit, but so far I don't care. :)
I am the same. For example, Chase Southwest Card gives you 40,000-60,000 (depending on timing) Southwest Airlines point to sign-up. You can directly cash those in for $600 in Amazon gift cards. Pay the $95 annual fee. Close as needed.
I also recommend the Amazon Visa card. 3% cash back on Amazon, 2% on restaurant/drug stores/gas and 1% on everything else. I buy everything humanly possible on Amazon so 3% cash back is great.
I also think the Starwood AMEX is great because Starwood gives great yields on their points. When I go on vacation, it's not difficult to get 10%+ effective cash back on Starwood hotels.
I carry a United Mileage Plus for United Perks and No International Fees.
I also bank at Ally.com online bank for 100% ATM reimbursement at any ATM. The 1% current yield on savings accounts is great too for emergency funds.
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Criminal convictions were never going to happen - big banks/big bankers are basically the the defacto financing arm of American politics. NYC bankers basically ARE the mainstream Democratic party. Anyone that thought Obama was going to destroy his own party for fairness needs to move to a Scandinavian country or some egalitarian society.
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But the problem with that thinking is that, by the time the investor/market realizes that Management is destroying value, you can't sell without a loss.
You don't believe a shareholder can assess when shares are overvalued?
No, I think the average retail investor cannot make that assessment. They are in a position where they must trust Management to make their capital investment decisions for them (that's why CEOs make tens of millions of dollars after all.) So I do not think it is fair to blame shareholders for the actions of Management.
The capital allocator of the average retail investor is a mutual fund manager.
I don't think the average mutual fund manager can do it either. I think being good at spotting overvalued/undervalued stocks is really, really, really hard in truth. Maybe less than 1 percent of investors have that ability over the long-run.
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But the problem with that thinking is that, by the time the investor/market realizes that Management is destroying value, you can't sell without a loss.
You don't believe a shareholder can assess when shares are overvalued?
No, I think the average retail investor cannot make that assessment. They are in a position where they must trust Management to make their capital investment decisions for them (that's why CEOs make tens of millions of dollars after all.) So I do not think it is fair to blame retail shareholders for the actions of multimillionaire Management teams.
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The person who destroys value by holding overpriced shares is... YOU!!!!!! Don't blame the management, take responsibility for your own boneheaded decisions. They buy some shares that you decide not to sell... you blame them. Hmm... why is it again that you are still holding the shares anyhow?
What? This doesn't make any sense.
First, from a practical perspective, you don't know if Management destroys shareholder value until it does - at which point it's too late to sell your shares. Secondly, if the stock price appreciates, do shareholders take the credit for that great decision or does Management? So it's shareholder's fault if the stock goes down but Management's credit if the stock goes up?
Secondly, Management is entrusted with the stewardship of a Company's capital. If I rent your house from you and then I burn it to the ground with a can of gasoline, is that my fault or your fault? Let me burn down your house and see if you blame yourself. Something tells me you'd demand I be put in prison and you'd sue the crap out of me.
management destroys value if they buy overvalued stock. So that means that you made a mistake buying overvalued stock. You bought 80 cents for 1 dollar basicly. If you do your job right as a vallueinvestor, you will never have to worry about this. Because the stock is always cheap, as you sell as it starts to be expensive.
It would only be a mistake if they should have reinvested it in the business instead. This would be bad. Get a 10% return with buybacks, a 5% return with dividends, but if they would have gotten a 20% return by investing in the business then buying back is a mistake. But vs dividends it never is a mistake if the stock is trading below intrinsic value.
For example if a company is fast growing, it could trade on high multiples. But this could still be cheap. BUT it is not cheap if they are using too much capital to buy back. You are basicly buying the stock hoping it will grow earnings and reinvest capital at attractive rates.
But if they are matured and trading at depressed valuations, buying back makes lot's of sense. OR if they are growing moderately, and have left over capital and growth, ROIC and competitive advantage (ie: risk) is not properly priced in yet. Or simply if they don't need a lot of capital because ROIC is very high.
But if you own for example Intel now if it was trading at 40x earnings, then yeah your an idiot. Sure buying back is bad on their side, but not very relevant as the more relevant thing is, why the hell are you owning intel at 40x earnings, it is matured for the most part!
So to boil it down, if it is very likely that the stock will have a larger market cap 5-10 years from now, and they don't have cash to invest elsewhere at attractive rates, then buying back is always preferable over dividends.
Let me first say that I think Eric is correct in theory - buybacks and dividends are essentially a functional equivalent in liquid public stocks because you can always create your own dividend by selling your pro-rata share of ownership.
But my issue is that I think value investors tend to (a) overestimate the number of securities that are undervalued at any one time and (b) overestimate the ability of Management to counter-cyclically react to the market (i.e., buy when the stock is low and sell when the stock is high.) I can probably count on one hand the number of CEOs that did it successfully (think of all those SHLD buy-backs at $160/share).
I would also like to note that as a smaller investor (a) my required return is probably much higher than that of a public company so I'd rather have the cash in most situations and (b) transaction fees are a real issue so continually selling stock to create functional dividends is difficult.
But Eric is correct - it's basically a Miller/Modigliani argument. Absent taxes/transactions costs, dividends and pro-rata stock sales are the same.
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The person who destroys value by holding overpriced shares is... YOU!!!!!! Don't blame the management, take responsibility for your own boneheaded decisions. They buy some shares that you decide not to sell... you blame them. Hmm... why is it again that you are still holding the shares anyhow?
What? This doesn't make any sense.
First, from a practical perspective, you don't know if Management destroys shareholder value until it does - at which point it's too late to sell your shares. Secondly, if the stock price appreciates, do shareholders take the credit for that great decision or does Management? So it's shareholder's fault if the stock goes down but Management's credit if the stock goes up?
Secondly, Management is entrusted with the stewardship of a Company's capital. If I rent your house from you and then I burn it to the ground with a can of gasoline, is that my fault or your fault? Let me burn down your house and see if you blame yourself. Something tells me you'd demand I be put in prison and you'd sue the crap out of me.
You make the point that value is not destroyed until it is. Please stop talking like a fortune cookie and say it in a way that I can respond to.
I don't know where you are going with the bit about prices going up and down, and who takes credit for it.
Nor do I understand what the burning house is referring to.
Yes, my point is that it's very easy to say, "It's the fault of the investor to own shares of a company when Management is destroying value." But the problem with that thinking is that, by the time the investor/market realizes that Management is destroying value, you can't sell without a loss.
Secondly, your point above seems to indicate that you blame SHAREHOLDERS for owning shares of a company where Management is destroying value (i.e., shareholders need to take responsibility for their own decisions.) But that's blaming the victim - a shareholder cannot create or destroy business value. They can only buy, hold or sell. Only Management can destroy business value. Don't blame shareholders for which they have no responsibility.
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The person who destroys value by holding overpriced shares is... YOU!!!!!! Don't blame the management, take responsibility for your own boneheaded decisions. They buy some shares that you decide not to sell... you blame them. Hmm... why is it again that you are still holding the shares anyhow?
What? This doesn't make any sense.
First, from a practical perspective, you don't know if Management destroys shareholder value until it does - at which point it's too late to sell your shares. Secondly, if the stock price appreciates, do shareholders take the credit for that great decision or does Management? So it's shareholder's fault if the stock goes down but Management's credit if the stock goes up?
Secondly, Management is entrusted with the stewardship of a Company's capital. If I rent your house from you and then I burn it to the ground with a can of gasoline, is that my fault or your fault? Let me burn down your house and see if you blame yourself. Something tells me you'd demand I be put in prison and you'd sue the crap out of me.
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also optimizing for Cash Flow vs P&L is a complicated topic and not every business is in a situation where they can do that. In a rational world the accrual accounting and the cash flow accounting eventually matchup so that the only benefit is the time value of money.
that and there are in the long-term issues with optimizing for tax - especially for industries that sell to the public sector.
I completely agree and I will go further - most companies actually do their best at optimizing for tax; it's just there aren't nearly as many easy ways to do it as people think. Secondly, the people that tend to do it aggressively don't just get fired, they end up in prison.
Trust me, as a Big 4 employee that works with our tax group fairly often on different matters, if there was a lever that could be pulled that would simply allow a company to legally shelter profits from taxes without other negative consequences, they'd pull that lever in a heartbeat.
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Yeah, this can't be true. Only 4% of the poor believe good habits lead to opportunity? Get real.
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In all fairness, that's 14x LTM EBITDA. There could be loads of pork spending in the P&L and it might be a great opportunity for a PE firm to cut out the fat...
...I'll see myself out.
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IFRS-US GAAP conversion is voluntary as of Jan 01 2015. Voluntary has different meaning in different sectors.
BIS capital requirements drive off IFRS, not US GAAP, so that everyone speaks the same financial language. BIS itself sets the global rules for banks, but has no force of law - each sovereign takes the BIS requirements & codifies it into its own legal structure. If you claim to be a global bank you have to be using IFRS, or suffer wanna-be ridicule. Hence, every major global US bank will cut over Jan 01; because if they don't convert - & their competitors do, they will have just proved that they actually are a wanna-be - & 2nd rate at best.
IFRS is more stringent on valuation. Many US GAAP asset valuation practices do not qualify under IFRS, & the valuation differences (write-offs) will be transitioned over 5-10 years (10-20% write-off/yr) for regulatory capital determination purposes. If you have more of this junk than your peers (BAC), or there is an expectation that you will be slower to convert than your peers, you will be penalized.
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As someone who works at a Big 4, I can assure you US banks won't be converting to IFRS any time soon. Don't hold your breath.
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People have an almost religious view of government as the savior.
No, they don't. In fact, I'd argue that extreme anti-government individuals tend to be the ones that use "religious" or dogmatic arguments against the state. I think the average person understands that government is a necessity in a modern society. In fact, if you ran a worldwide regression between happiness of a population and the size of government as a percent of GDP, you'd probably see a pretty strong correlation that more government is better.
Now, as an American in the South, I am no proponent of big government. But I also think extreme anti-government types basically have the perspective of a wealthy teenage girl complaining about her parents - biting the hand that feeds because they are too bratty to imagine the real alternative (hint: government-less states tend to be awfully crappy.)
If you want to discuss the problems of "big government" such as the NSA dragnets, I am all ears. But if you are going to argue against the FDA, I think even a casual reading of society before that kind of regulation would do you some good. People used to get some snake-oil made in bathtubs that were allegedly "cure-alls." And it's because sick, diseased people would be willing to drink mercury by the gallon if they thought it made them healthy.
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So his view is that wealth inequality isn't an issue because the lower class get jobs working on the private jets of the wealthy? Reminds me of the old joke about the Ferrari driver who said buying a Ferrari was good for the lower class because someone has to wash Ferraris.
Coronavirus
in General Discussion
Posted
You actually think us Americans were mistreated? Was not sitting in restaurants and going to large gatherings too much to bear? The entitlement I've seen from my American brethren is shocking. Not willing to give up the smallest inconveniences to prevent mass death. More deaths in 2 months than the entire Vietnam War (and closing in on WWI) but wasn't allowed to sit at an AMC and eat popcorn.
My belief in my fellow Americans has been severely damaged in this order. This is not the country that put a man on the moon anymore.