Horizon Kinetics Commentary - bear scenarios for the likes of AAPL, MSFT

[brk64311]

Thoughts, especially for P9,10? It is not a bottom-up/fundamental analysis, rather more macro/broad brush. Still curious about what others on the board think.

Q2-2019-Horizon-Kinetics-Commentary-_Final-1.pdf

[Jurgis]

I think that AAPL and MSFT are great examples of how their analysis can go right and can go wrong:

 

- If AAPL/MSFT have the same products in the future and no growth (or even revenue drop), then their stocks will be rerated lower.

- If AAPL/MSFT develop new products/services in the future or find ways to piggyback to existing products/services and charge more, they can grow and keep the existing valuations with growing results.

 

If you look in the past, there were times when people argued that MSFT hit peak-PC and then MSFT created/sold additional services/products. You can argue the same about AAPL in the past.

 

If HK are arguing about limited number of people on the Earth - or limited number of the internet users - then perhaps they should not take AAPL/MSFT as their examples. Neither of these companies are really Internet-users constrained. Perhaps they should have talked about everyone's favorite whipping boy FB.  ::)

 

In general Horizon Kinetics have been bearish for last X years. They make good sounding arguments. At some point they might be right... But you also have to think why their arguments are not as bulletproof as they think they are.

 

IMO HK arguments are hugely skewed and sometimes downright simplistic: "there is every reason to believe that Dell or perhaps some other firm would challenge Apple with an inexpensive smartphone" - duh... you don't say... nobody has thought that someone might challenge Apple with an inexpensive smartphone... what an insight... I'm gonna go sell all my Apple stock right now...  ::)

[CorpRaider]

Thoughts, especially for P9,10? It is not a bottom-up/fundamental analysis, rather more macro/broad brush. Still curious about what others on the board think.

 

Agree.  After an initial period of moderate infatuation, I have basically written them off as verbose "bear-shitters."  I try to limit exposure to that kind of content.

[Sportgamma]

I'm not really sure what a bear-shitter is but I don't think that Horizon Kinetics are particularly bearish in the traditional sense. They are bearish in the sense that they hold high cash positions in their funds, but it's not like they are short these names they mention in the commentary.

 

I think you also need to consider what their objective is with an analysis like this. Who are they talking to? They are talking to high-net-worth individuals and institutional investors. They are talking to their clients and potential clients. They are talking to people who manage portfolios.

 

The commentary isn't really a call on the market, it's a scenario. The point is not that this is how things are going to play out. What they are pitching here (the same applies to last quarter's commentary) to their audience is that the S&P500 might have a concentrated exposure to certain events, whereas the HK products will give you very different sets of exposures. They are saying that they have products and strategies that fit well as an allocation option into a portfolio.

 

In recent years we have seen AUMs move from active mangers to index-based alternatives that are structurally cheaper. Closet indexers will not survive in this environment and HK understand this very well. I think many active managers have gotten burned simply because there is nothing that distinguishes them from their direct competitors (value, income, growth, etc). Take Manning and Napier for example. What sets them apart? I can't for the life of my figure that one out.

 

In my opinion, HK has done very well in developing investment products and strategies that differentiate them from other asset managers.

[ValueMaven]

Agreed -- but in some of their funds they hold 40% in TPL ??  In a single stock -- thats unheard of

[Sportgamma]

Agreed -- but in some of their funds they hold 40% in TPL ??  In a single stock -- thats unheard of

 

True, and perhaps a bit ironic given the fact that they are expressing their concern that the online tech companies might become an ever-increasing size of the S&P500.

 

The earliest writeup that I have seen from Murray on TPL is from 1996 I think, but he's probably been in it even longer. I would think that a fund like a Paradigm fund has a very low-cost base on their TPL position.