What stocks will make their owners rich over the next generation?

[randomep]

China may have had lower levels of literacy in the past but that is not the case anymore with the younger generation. My understanding is that the literacy levels in China are high and they are increasing even in India and Africa.

 

As a society gets richer - it will find the money and ways to educate it's people.

 

I beleive the literacy levels across the world today are over 80%. It is not the same world that existed 30 years ago.

 

There are huge problems with what you said. China is squeezing the population growth artificially. There isn't enough young growth to fill for the aging. China has to make do with their 20yr and 30yr olds for decades to come. And you know... once a person is 20's they have to make do with whatever education they got, nobody goes back to school at 25. So those hundreds of millions of 20-40 yr olds in china living on $2 a day have very little chance of improving themselves. So that will contradict what the original poster said, $20-25k salary in 20yrs, not when you got hundreds of millions living on $2 a day.

 

The 2nd thing is education. Literacy is a world away from making $20-25k a year. Right now that kind of salary is reserved for the best in engineering classes or whatever other profession. I am in engineering so lets talk about that. How many engineers can a university produce? 100-200 a year? and how many of those type of first rate unversities can you have? 5? 10? in the country? You are talking a few thousand to notch grads capable of making 20-25k. And china cannot build unversities the way they build high rises. And this is not even mentioning the law and risk taking culture that is required for innovation which China is sorely lacking.

 

The same goes for South America, like Brazil. When you imagine in your mind a world where those countries can become like the west, you'll see the numbers just don't add up. The last 10-20 yrs for the brics for example has shown that a bit of progress does not project into indefinite growth.

 

Any reason why a competent engineer in China should always make 25k instead of the 100k+ someone with those credentials makes in the developed world?

 

 

Oh boy do I ever have reasons. I have worked in companies with cooperative teams in China, Korea, Japan, India and Israel.

 

With China, this is my experience. Suppose another team needs something done ASAP. It is sunday. So I ask the manager in china to get her team to help. She has to have a meeting with me and I have to labouriously explain what needs to be done. Then I have to write a document. By tues they may have some idea we need to do this. By wed we probably have another meeting with some engineers and the manager. And then they start working, on thurs. So say they make 1/5 what we make. What I could do in a week, seems like they can only get started on on Thurs. They got 2 days while I have 5.  Already you can see how I can be much more productive.  The key is that management thinks that since a woman can have a baby in 9 months. They can hire 9 chinese women to have a baby in 1month. Well, it dont work that way.

 

Any I haven't mentioned the politics aspect. Though the engineers are honest and want to do a good job, the key is who is in charge. I had to deal with a female manager, and to call her stupid is being generous. She is in a software/hardware coding group as a technical manager and she cannot write 5 lines of code if her life depends on it. I think only in china can she get as far as she does. Yes she may make 1/5 my salary but it still makes me resentful that technically she was manager in this project. She is also negating the brains of their team of 10.

 

 

Another aspect is the innovative culture that only exists in north america. I wrote a piece of code, the key to making our company more efficient is to keep this code for future generations of products. I kept telling people, do not cut and paste it, reuse-it. The risk of reuse is that it might break the current application. Now you have one piece of code for two places. It is safer for the engineer to duplicate it to have two pieces of code for two applications. And that's what he did, I realize no amount of convincing can change that. The engineers are just out to do their job w/o caring about the big picture, why bother, when the manager is incompetent.

 

Believe me, our management would love to ship our jobs to asia or texas or anywhere it is cheaper. But you know what, right now I am in an asian company that has moved their R&D to silicon valley. They must have realized in the end we are a bargain!

 

So in the end it isn't IQ or education or training, or culture alone, it is a combination of all that makes one worth that much.

 

 

 

 

[beerbaron]

Oh boy do I ever have reasons. I have worked in companies with cooperative teams in China, Korea, Japan, India and Israel.

 

With China, this is my experience. Suppose another team needs something done ASAP. It is sunday. So I ask the manager in china to get her team to help. She has to have a meeting with me and I have to labouriously explain what needs to be done. Then I have to write a document. By tues they may have some idea we need to do this. By wed we probably have another meeting with some engineers and the manager. And then they start working, on thurs. So say they make 1/5 what we make. What I could do in a week, seems like they can only get started on on Thurs. They got 2 days while I have 5.  Already you can see how I can be much more productive.  The key is that management thinks that since a woman can have a baby in 9 months. They can hire 9 chinese women to have a baby in 1month. Well, it dont work that way.

 

Any I haven't mentioned the politics aspect. Though the engineers are honest and want to do a good job, the key is who is in charge. I had to deal with a female manager, and to call her stupid is being generous. She is in a software/hardware coding group as a technical manager and she cannot write 5 lines of code if her life depends on it. I think only in china can she get as far as she does. Yes she may make 1/5 my salary but it still makes me resentful that technically she was manager in this project. She is also negating the brains of their team of 10.

 

 

Another aspect is the innovative culture that only exists in north america. I wrote a piece of code, the key to making our company more efficient is to keep this code for future generations of products. I kept telling people, do not cut and paste it, reuse-it. The risk of reuse is that it might break the current application. Now you have one piece of code for two places. It is safer for the engineer to duplicate it to have two pieces of code for two applications. And that's what he did, I realize no amount of convincing can change that. The engineers are just out to do their job w/o caring about the big picture, why bother, when the manager is incompetent.

 

Believe me, our management would love to ship our jobs to asia or texas or anywhere it is cheaper. But you know what, right now I am in an asian company that has moved their R&D to silicon valley. They must have realized in the end we are a bargain!

 

So in the end it isn't IQ or education or training, or culture alone, it is a combination of all that makes one worth that much.

 

What you described in your examples was an incompetent engineer. I've seen many incompetent engineers in NA too, they just did not climb the ladder that much. In China relationships can bring you pretty high in the corporate world, especially if you have a tight ass.

 

However, I would not be ready to challenge North-America's top 1000 engineers against China's top 1000 engineers. Technically our ass would get kicked, they have studied harder, longer and better than us. They would work harder and longer thant us as well. Overall, I hugely respect China's engineers but we have to understand that the spectrum of technical qualifications is much wider than in North-America. An undergraduate from Shangai's university is probably much more qualified than one from Ningbo's university.

 

BeerBaron

[wisdom]

It is still early days for them and they have to learn newer ways of doing things. Nothing says things will always remain the same. People will get better with time and experience.

[kmukul]

http://www.thestreet.com/story/12083751/1/bill-erbey-made-23b-off-your-underwater-mortgage.html

 

anything by this guy has huge potential.

 

Thanks a lot for the article yadayada, Agree this guy is probably a very good bet (probably better then other bets posted here in this thread) except may be he is slowing with his age as the article says.

[thecynic]

However, I would not be ready to challenge North-America's top 1000 engineers against China's top 1000 engineers. Technically our ass would get kicked, they have studied harder, longer and better than us. They would work harder and longer thant us as well.

 

I think you are underestimating the impact of immigration, the top 1000 engineers in the US are probably the top most engineers born in the US, China, India, Iran, etc.

[randomep]

However, I would not be ready to challenge North-America's top 1000 engineers against China's top 1000 engineers. Technically our ass would get kicked, they have studied harder, longer and better than us. They would work harder and longer thant us as well.

 

I think you are underestimating the impact of immigration, the top 1000 engineers in the US are probably the top most engineers born in the US, China, India, Iran, etc.

 

 

A professional is judged by the things he is done in an interview. In my field which is chip design, if I went to china I wouldn't be able to fill any of the positions. They are all kids with no experience! If you give them a specific task maybe they can do it. But the most valuable people are those who can find solutions when confronted with a problem. In chip design, people like me are hired as the first person who comes in has finds a solution in a project and build a team around it. The approach in my previous company was to have senior people in USA with support from china.  But as my experience showed, they weren't worth the trouble. And there were cases were we actually moved work from China to USA. This is the general experience I feel for the whole company and this is a large company that you've all heard of.

 

In engineer the work is accumulative. We don't work in a vacuum. We stand on the shoulder of giants. That is why in my field the companies are so concentrated. Early on I learned from the senior engineers. And now I am imparting knowledge on others. But these people I worked with in china aren't interested, it is a totally different mindset culture. That fella that I mentioned, he was from the best university in shanghai with a masters. But can I really blame him considering who he has for a manager.

 

There is no positive feedback loop that allows them engineers to get better and better in chip design.

 

In chip design, you can say silicon valley engineers have built the modern x86 processor, they built networking chips, virtually all the chips inside your computer or smartphone. If not then they are built in Europe. So at least in chip design, chinese engineers are good? What have they done? I wouldn't hire them! And so I am giving the rationale that they should get 1/5 or salary. Based on what you said, the labour market is hugely inefficient and companies are not taking advantage of salary arbitrage opportunity.

 

Maybe this is different in rocket design or train design but those require less innovation.

 

 

[mcliu]

It's just a matter of time. Fifty years ago Chinese engineers can hardly design a functional toaster oven and now they're building space rovers and bullet trains. Eventually they'll be able to design better micro-chips.

 

People forget that China's gone through a lot over the past century (multiple civil wars, WW2, cultural revolution) that's really damaged the country's institutions. It's really the past 35 years that most of the country started to move beyond farming and basic manufacturing.

[rkbabang]

I am in chip design as well, and one thing I've noticed is that the Chinese born engineers I've worked with in the U.S. are as smart and competent as any U.S. born engineer, yet working with the Chinese design center on a number of products I agree with everything randomep has been saying.  I've always assumed that it was the schools, because the Chinese born engineers that I've worked with here in the US have degrees from U.S. universities.

[tiddman]

A professional is judged by the things he is done in an interview. In my field which is chip design, if I went to china I wouldn't be able to fill any of the positions. They are all kids with no experience! If you give them a specific task maybe they can do it. But the most valuable people are those who can find solutions when confronted with a problem. In chip design, people like me are hired as the first person who comes in has finds a solution in a project and build a team around it. The approach in my previous company was to have senior people in USA with support from china.  But as my experience showed, they weren't worth the trouble. And there were cases were we actually moved work from China to USA. This is the general experience I feel for the whole company and this is a large company that you've all heard of.

 

I work in software engineering and my experience is exactly the same as this. On paper, overseas workers are cheaper with similar qualifications.  However in practice they simply don't do the same amount of work, and often effectively do "negative work" because the amount of oversight required exceeds their work output.

 

I was on a project 5 years ago where we replaced 50 offshore workers in India and Pakistan with 5 "onshore" workers, and we turned the project around after it had been in trouble for 3 years.  On paper the 50 offshore workers were actually cheaper than the 5 US workers but simply couldn't get the job done. They could look at and address a single small task and declare it done, but nobody could look at the larger picture to see that there was duplicated work, the same issue being re-opened 10 times, etc.  In this case there were also problems of corruption, the person in charge of the Pakistan office was skimming nearly 50% of the money we paid and hiring the cheapest workers out of school (i.e. he made the equivalent of 50 of his workers).

 

On another project we hired a few people from Chennai.  To mitigate the potential productivity problems we brought the lead guy to the US for 2 weeks to get to know him.  He was smart, communicated well, etc.  However once he returned to Chennai and we had to work with him via 12 hour time change and from his office it was just impossible to get anything done.  We had to walk him through each tiny step of each problem (this was usually at 12-4am our time). They would sometimes have a misunderstanding at the end of our work day, and the beginning of theirs, and we'd show up for work the next day to learn that they lost an entire day's work.  We had to assign senior people to "babysit" them, to the point that the senior person could have just done the work himself faster.

 

While we couldn't pinpoint it, it seemed like they were almost trying to misunderstand, drag projects on, and never finish anything.  I think they just wanted to stretch the work out as long as possible, knowing that during their work day, we were asleep and they could do what they wanted. I even suspect that some of them were simultaneously working for more than one company.

 

Culturally there is a very strong incentive to "fit in" and just say "yes" to whatever you're asked, I think this is how they are raised and what they are taught in school. This leads to a lack of problem-solving, creativity, and self-motivation that are the hallmarks of a successful worker here.

[yadayada]

isnt this an incentive problem. Just get a few together, and reward them with a %? But I guess that would make it more expensive.

 

Also this:

http://www.joelonsoftware.com/articles/FindingGreatDevelopers.html

 

And this seems relevant for the discussion

http://visual.ly/world-100-people

 

Seems that only 30% access the internet. If you want to make people smarter, getting them acces to the internet should be a priority. And Im suprised that still so many people have no shelter and are starving. But maybe nomads count as no shelter?

[randomep]

It's just a matter of time. Fifty years ago Chinese engineers can hardly design a functional toaster oven and now they're building space rovers and bullet trains. Eventually they'll be able to design better micro-chips.

 

People forget that China's gone through a lot over the past century (multiple civil wars, WW2, cultural revolution) that's really damaged the country's institutions. It's really the past 35 years that most of the country started to move beyond farming and basic manufacturing.

 

Eventually...... ya you can say any country can eventually get somewhere, I cannot disprove that.

 

But my spiel was about the earlier poster who says China and other emerging countries can get to $20-25k salary in 20yrs. I'll definitely argue that ain't happening.

 

Now you imply 35yrs is just a short time. Well it really isn't that short. 35yrs after WW2 Japan was the top 2 economies in the world. 20yrs after the fall of the Berlin wall, German is dominating europe economically.  Now if you say well china is a much bigger ship than other countries that turned around, well that's exactly my point. China will take much much longer to catch up in a per-capita basis. In 50yrs we'll be dead, and so will much of china's old uneducated masses, THEN it'll be a whole new ballgame.

 

But who knows microchips might be obsolete by then!

 

 

[randomep]

isnt this an incentive problem. Just get a few together, and reward them with a %? But I guess that would make it more expensive.

 

 

This is definitely not a incentive problem. Command economies would love to throw money at people in specific industries and be world leaders.  There have been several location designed to copy silicon valley. Shanghai man, their hi tech area is huge, they run it like a car factory of the 1950s.

 

China does try to specialize in high speed rail I think, but I've heard their trains crash more than most.......

 

think about why tin pot dictators cannot just throw money at their armed forces and be a powerful military threat....

 

 

 

[mcliu]

You're comparing apples to oranges. The two situations are completely different.

 

http://en.wikipedia.org/wiki/List_of_PRC_administrative_divisions_by_GDP_per_capita

 

It will be hard to get to $25,000 GDP per capita in 20 years for the whole country. Not impossible though. GDP per capita has grown by 10x over the past 20 years. You only need 3x growth in the next 20 years to get to something like $20,000. That's for 1+ billion people.

 

There's also a big discrepancy in the growth. If you look at the top cities, they're already at over $10,000 GDP per capita and growing very quickly. If you take the ones that are above $10,000, that's still over 210 million people.

 

I don't think looking at China as a whole makes sense. Yes, the poor parts will still be poor in 20 years, but the rich coastal parts will likely be just as rich as developed countries. And the engineers in those areas will likely be just as competent by then.

[randomep]

You're comparing apples to oranges. The two situations are completely different.

 

http://en.wikipedia.org/wiki/List_of_PRC_administrative_divisions_by_GDP_per_capita

 

It will be hard to get to $25,000 GDP per capita in 20 years for the whole country. Not impossible though. GDP per capita has grown by 10x over the past 20 years. You only need 3x growth in the next 20 years to get to something like $20,000. That's for 1+ billion people.

 

There's also a big discrepancy in the growth. If you look at the top cities, they're already at over $10,000 GDP per capita and growing very quickly. If you take the ones that are above $10,000, that's still over 210 million people.

 

I don't think looking at China as a whole makes sense. Yes, the poor parts will still be poor in 20 years, but the rich coastal parts will likely be just as rich as developed countries. And the engineers in those areas will likely be just as competent by then.

 

 

There's also a big discrepancy in the growth. If you look at the top cities, they're already at over $10,000 GDP per capita and growing very quickly. If you take the ones that are above $10,000, that's still over 210 million people.

 

I don't think looking at China as a whole makes sense. Yes, the poor parts will still be poor in 20 years, but the rich coastal parts will likely be just as rich as developed countries. And the engineers in those areas will likely be just as competent by then.

 

I know I am comparing apples and oranges. So we can nip "china as a WHOLE being like eastern europe" in the bud. If you want to talk about the top 200mil out of 1400 mil.... ok. I just want to clarify.

 

At least this thread may make some people think, it isn't preordained that china will go up and up and when you look at the demographic issues, china has unique demographic problems, as is India, S America, other developing countries (like eastern europe) do not have an achilles heel. So comparing is pointless. The richest 200mil of china, well that's a separate beast. But even then I think they are plateauing. I suspect those 200mil are riding on the backs of those 400+mil who make $2 a day, eg. migrant workers. That is very difference from eastern europe, which is doing it with high tech or other value added industries.

 

 

[frommi]

14 pages and nobody mentioned WFC. Why? :)

It has one of the highest growth rates in bookvalue of all mature companies i have seen (and when you factor in dividends it crashes everything), and is still not overly expensive. And the environment can get a lot better than the last decade for them. There is a reason Buffett and Munger love this bank.

[PatientCheetah]

SZYM - Solazyme

 

Haven't done much work on it, financial statements look terrible, founders are not scientists, but it potential does have a revolution array of products and some JVs with credible partners/government agencies. It somewhat reminds me of TSLA - economics are not obvious from the financial statements, revolutionary products, great reviews on its initial products, small capitalization, etc. Not a high conviction buy candidate but could be good for a 1-2% position due to its high optionality

[gary17]

sasol has been converting natgas to oil -

[txitxo]

I will bet my farm that those 3 regions will not reach $20-25k.

 

  Well, the median household income of Chinese americans is about 30% higher than the US average. So maybe not all regions in China will reach 20k. But the average will certainly get there. India is more complex and diverse, but come on, Indians are the top earning ethnic group in the US, it is a country with world class brains and a very inexpensive workforce. With the right changes it would explode economically. It reminds me a bit of Russia in the 2nd half of the XIX-th century. It had similar ingredients, and underwent massive spurts of growth after every round of reforms.

 

  My point is, you are going to have 2-3  billion people doubling or tripling their GDP per capita with respect to the rich countries in the next 20 years. In a sense, those 200M in the rich regions of China are just the tip of the iceberg. The changes won't be lineal, they won't be smooth, but they are unstoppable. I see them as the safest bet for the next two decades.

 

 

 

 

 

 

 

 

 

[ukvalueinvestment]

But there is no correlation between GDP growth and stock returns.

[kmukul]

Can we do a poll for this thread? i think it will be more relevant poll for this forum. Not sure how do add a poll to this thread may be prasad can help in that and also vote :)

 

My guess is thomas cook here, Thesis is pretty simple Mr Watsa has made it its primary investment vehicle in india and given his track record it should be a grand slam

 

[DTEJD1997]

Every generation has a handful of stocks that make their owners fabulously wealthy, even from small ownership stakes. 

 

 

What are the stocks that will make their owners rich over the next 10, 20, and 30 years?  What stocks will be written about in articles - you know the kind that say "so and so bought $10,000 in this stock 40 years ago and now they're a billionaire"?

 

 

Some past examples:

• Berkshire Hathaway, obviously - 1960s - 1990s
  
• Microsoft - 1980s IPO until late 1990s
  
• Fairfax 1980s - mid-2000s
  
• Coke - forever until forever
  
• Walgreen's - 1960s - now
  
• Exxon - 1960s (or before) - now
  

 

How do you figure that Coke has been a good investment?  It certainly has NOT been good for shareholders since the late 90's.  KO is only now starting to see the high prices it was in 1997/1998.  If you have been a long term KO shareholder, you have done very poorly until just recently.

 

Now KO certainly has been a good investment for upper level management.  Shareholders not so much...

[JAllen]

Every generation has a handful of stocks that make their owners fabulously wealthy, even from small ownership stakes. 

 

 

What are the stocks that will make their owners rich over the next 10, 20, and 30 years?  What stocks will be written about in articles - you know the kind that say "so and so bought $10,000 in this stock 40 years ago and now they're a billionaire"?

 

 

Some past examples:

• Berkshire Hathaway, obviously - 1960s - 1990s
  
• Microsoft - 1980s IPO until late 1990s
  
• Fairfax 1980s - mid-2000s
  
• Coke - forever until forever
  
• Walgreen's - 1960s - now
  
• Exxon - 1960s (or before) - now
  

 

How do you figure that Coke has been a good investment?  It certainly has NOT been good for shareholders since the late 90's.  KO is only now starting to see the high prices it was in 1997/1998.  If you have been a long term KO shareholder, you have done very poorly until just recently.

 

Now KO certainly has been a good investment for upper level management.  Shareholders not so much...

 

 

Note the word 'generation'; so I mean over 20-30 years or so.  You picked the top of a bubble - when Coke traded for 80 times earnings, so yes, stock hasn't fared well since then, unsurprisingly. 

 

 

IMO, for a stock to qualify it would have to return a 15% CAGR over twenty years or longer.  14% would suffice as well.

 

 

Since most of us will be alive for 20-30 more years why aren't our investing horizons much closer to this length of time?

[DTEJD1997]

 

Note the word 'generation'; so I mean over 20-30 years or so.  You picked the top of a bubble - when Coke traded for 80 times earnings, so yes, stock hasn't fared well since then, unsurprisingly. 

 

 

IMO, for a stock to qualify it would have to return a 15% CAGR over twenty years or longer.  14% would suffice as well.

 

 

Since most of us will be alive for 20-30 more years why aren't our investing horizons much closer to this length of time?

 

I bring it up as KO has been a very poor investment for a large group of people, for a large period of time.  KO didn't just spike up for a month or two.  If you bought in 1996 to something like 2001, you have not really made that much of a return.

 

Even Buffet made a mistake with KO, he refused to sell at or near the top.

 

So I question your assertion that KO provides investors to make returns that will make them fabulously wealthy "forever until forever".

[ukvalueinvestment]

If you pick something near the all time high for any stock, returns will look less good (google finance tells me 1998 was the peak).

 

I don't think anyone can argue that Coca Cola has been one of the all time great wealth creating companies - can they?

[JAllen]

If you pick something near the all time high for any stock, returns will look less good (google finance tells me 1998 was the peak).

 

I don't think anyone can argue that Coca Cola has been one of the all time great wealth creating companies - can they?

 

 

Do you mean argue against?