What are you buying today?

[Voodooking]

BABA - 5% position.

[cameronfen]

Bought Naspers,

 

I think the discount is enough margin of safety, Tencent could be overvalued. I'm not smart enough to value Tencent but i'm happy to get everything else for free. I think there is value in the other holdings will be realised later.

 

Hoping management get increasingly desperate to demonstrate the value and follow through spinning off other units.

 

I think there is a high probability that Tencent is undervalued.  Here is a post by Saber Capital (I think John posts here but idk the name): http://sabercapitalmgt.com/wp-content/uploads/2013/03/Tencents-Wide-Moat-Manual-of-Ideas-2017.pdf

 

Mainly compare the ARPU versus facebook.  Obviously they are different businesses, but Wechat may be even better business than fb.  The average person in China spends half their time on the internet on Tencent properties.  That's not being monetized hardly at all compared to western standards. 

[DanielGMask]

It is based on relative purchasing power, term spread and cash interest rates. The mexican peso right now is very undervalued on rppp (~35%) against the USD and ranks very high on term spread and interest rates. Ruerd Heeg on Seeking Alpha has some good articles on currencies.

 

Seems dangerous! I live in Mexico and we are about to elect a new president and part of congress. The candidate that’s leading (by a lot!) is clearly socialist and against market systems. This doesn’t mean that if he wins he is going to nationalize private companies or move against industry, nor that congress will approve such decisions, but he may control an important part of congress and indeed make some moves against free markets.

 

The peso is reflecting some of these fears and if I were to bet (I’m not), I would bet against the peso!

 

I base my investment decisions on facts, not on news or emotions. But hey, that makes a market. Maybe i am wrong.

 

Currency speculation is precisely that, speculation. And facts tend to be deceiving when dealing in an speculating environment, but seems you are comfortable and convinced of what you are doing. I was just trying to point you in the direction of some “facts” you consider news or emotions, so be my guest!

[Spekulatius]

It is based on relative purchasing power, term spread and cash interest rates. The mexican peso right now is very undervalued on rppp (~35%) against the USD and ranks very high on term spread and interest rates. Ruerd Heeg on Seeking Alpha has some good articles on currencies.

 

Seems dangerous! I live in Mexico and we are about to elect a new president and part of congress. The candidate that’s leading (by a lot!) is clearly socialist and against market systems. This doesn’t mean that if he wins he is going to nationalize private companies or move against industry, nor that congress will approve such decisions, but he may control an important part of congress and indeed make some moves against free markets.

 

The peso is reflecting some of these fears and if I were to bet (I’m not), I would bet against the peso!

 

I base my investment decisions on facts, not on news or emotions. But hey, that makes a market. Maybe i am wrong.

 

Currency speculation is precisely that, speculation. And facts tend to be deceiving when dealing in an speculating environment, but seems you are comfortable and convinced of what you are doing. I was just trying to point you in the direction of some “facts” you consider news or emotions, so be my guest!

 

I agree with above. A bad government in a developing country (I consider Mexico 2nd world) can do a lot of damage to the currency via debasement, just look at Argentina or Brazil a while ago, So this trade is assymetrical in a negative way, IMO.

[StubbleJumper]

It is based on relative purchasing power, term spread and cash interest rates. The mexican peso right now is very undervalued on rppp (~35%) against the USD and ranks very high on term spread and interest rates. Ruerd Heeg on Seeking Alpha has some good articles on currencies.

 

Seems dangerous! I live in Mexico and we are about to elect a new president and part of congress. The candidate that’s leading (by a lot!) is clearly socialist and against market systems. This doesn’t mean that if he wins he is going to nationalize private companies or move against industry, nor that congress will approve such decisions, but he may control an important part of congress and indeed make some moves against free markets.

 

The peso is reflecting some of these fears and if I were to bet (I’m not), I would bet against the peso!

 

I base my investment decisions on facts, not on news or emotions. But hey, that makes a market. Maybe i am wrong.

 

Currency speculation is precisely that, speculation. And facts tend to be deceiving when dealing in an speculating environment, but seems you are comfortable and convinced of what you are doing. I was just trying to point you in the direction of some “facts” you consider news or emotions, so be my guest!

 

 

Well, I mostly agree with that.  But, if the currency position is underpinned by PPP (purchasing power parity) analysis, it becomes a value investment.  Essentially PPP is fundamental analysis performing a relative valuation of two currencies.  My vague recollection of the PPP literature is that currency valuation gaps revert, but this can typically take 6 or 7 years.  So, a ~35% valuation gap is great, but the returns could quite possibly be disappointing if the reversion takes too long (ie, 35% in 7 years would generally be a disappointment, even if you also had a 3% annual coupon).

 

Personally, I usually place currency into the "too hard pile" with the exception of the CAD/USD trade.  That latter trade is so important that it needs to at least be part of any Canadian investor's thought process, even if getting it right can only be done at the extremes of PPP.

 

 

SJ

[TwoCitiesCapital]

It is based on relative purchasing power, term spread and cash interest rates. The mexican peso right now is very undervalued on rppp (~35%) against the USD and ranks very high on term spread and interest rates. Ruerd Heeg on Seeking Alpha has some good articles on currencies.

 

Seems dangerous! I live in Mexico and we are about to elect a new president and part of congress. The candidate that’s leading (by a lot!) is clearly socialist and against market systems. This doesn’t mean that if he wins he is going to nationalize private companies or move against industry, nor that congress will approve such decisions, but he may control an important part of congress and indeed make some moves against free markets.

 

The peso is reflecting some of these fears and if I were to bet (I’m not), I would bet against the peso!

 

I base my investment decisions on facts, not on news or emotions. But hey, that makes a market. Maybe i am wrong.

 

Currency speculation is precisely that, speculation. And facts tend to be deceiving when dealing in an speculating environment, but seems you are comfortable and convinced of what you are doing. I was just trying to point you in the direction of some “facts” you consider news or emotions, so be my guest!

 

 

Well, I mostly agree with that.  But, if the currency position is underpinned by PPP (purchasing power parity) analysis, it becomes a value investment.  Essentially PPP is fundamental analysis performing a relative valuation of two currencies.  My vague recollection of the PPP literature is that currency valuation gaps revert, but this can typically take 6 or 7 years.  So, a ~35% valuation gap is great, but the returns could quite possibly be disappointing if the reversion takes too long (ie, 35% in 7 years would generally be a disappointment, even if you also had a 3% annual coupon).

 

Personally, I usually place currency into the "too hard pile" with the exception of the CAD/USD trade.  That latter trade is so important that it needs to at least be part of any Canadian investor's thought process, even if getting it right can only be done at the extremes of PPP.

 

 

SJ

 

That's why you leverage the currency trade using futures OR the currency isn't the investment. I use opportunities like this to pick up foreign assets on the cheap. Typically when the currencies are cheap, it's due to capital flight, which means risk assets are cheap as well. So don't buy pesos - go on hunt for risk assets denominated in pesos.

 

Using $ to buy cheap assets means you get the same typical appreciation when the recovery occurs, but also the 20-30% currency kicker compounding the gains on top of that. There were some large, recongizable names in Brazil/Russia that returned 300-600% in USD terms in the 12-18 months following early 2016 due to the dramatic revaluation in earnings multiples AND currencies.

[StubbleJumper]

It is based on relative purchasing power, term spread and cash interest rates. The mexican peso right now is very undervalued on rppp (~35%) against the USD and ranks very high on term spread and interest rates. Ruerd Heeg on Seeking Alpha has some good articles on currencies.

 

Seems dangerous! I live in Mexico and we are about to elect a new president and part of congress. The candidate that’s leading (by a lot!) is clearly socialist and against market systems. This doesn’t mean that if he wins he is going to nationalize private companies or move against industry, nor that congress will approve such decisions, but he may control an important part of congress and indeed make some moves against free markets.

 

The peso is reflecting some of these fears and if I were to bet (I’m not), I would bet against the peso!

 

I base my investment decisions on facts, not on news or emotions. But hey, that makes a market. Maybe i am wrong.

 

Currency speculation is precisely that, speculation. And facts tend to be deceiving when dealing in an speculating environment, but seems you are comfortable and convinced of what you are doing. I was just trying to point you in the direction of some “facts” you consider news or emotions, so be my guest!

 

 

Well, I mostly agree with that.  But, if the currency position is underpinned by PPP (purchasing power parity) analysis, it becomes a value investment.  Essentially PPP is fundamental analysis performing a relative valuation of two currencies.  My vague recollection of the PPP literature is that currency valuation gaps revert, but this can typically take 6 or 7 years.  So, a ~35% valuation gap is great, but the returns could quite possibly be disappointing if the reversion takes too long (ie, 35% in 7 years would generally be a disappointment, even if you also had a 3% annual coupon).

 

Personally, I usually place currency into the "too hard pile" with the exception of the CAD/USD trade.  That latter trade is so important that it needs to at least be part of any Canadian investor's thought process, even if getting it right can only be done at the extremes of PPP.

 

 

SJ

 

That's why you leverage the currency trade using futures OR the currency isn't the investment. I use opportunities like this to pick up foreign assets on the cheap. Typically when the currencies are cheap, it's due to capital flight, which means risk assets are cheap as well. So don't buy pesos - go on hunt for risk assets denominated in pesos.

 

Using $ to buy cheap assets means you get the same typical appreciation when the recovery occurs, but also the 20-30% currency kicker compounding the gains on top of that. There were some large, recongizable names in Brazil/Russia that returned 300-600% in USD terms in the 12-18 months following early 2016 due to the dramatic revaluation in earnings multiples AND currencies.

 

 

Yep.  I do that for CAD/USD.  Try to find something cheap to buy using the currency that's also cheap.  Easier said than done, but if you can find something cheap, it's nice to not be taken out behind the wood pile when the currency reverts.

 

 

SJ

[Rainforesthiker]

I added to my Markel position.  Every time I hear their investor presentation in Omaha I have to buy more.

 

Anything in-particular from this year's presentation?  The stock seems a bit expensive to me here.

 

I wouldn't say anything in particular.  I was just reminded what a well run company this is, with very shareholder-oriented management and good insurance and investment teams.  I have held off buying because the stock did seem fairly priced to perhaps a bit overpriced.  But I think they are a long term compounder that I am happy to hold for a long long time, most likely the rest of my life.  And if they continue to compound decently, 20 - 30 years from now my entry point won't matter that much.  I didn't want this stock to be like a Berkshire or a Walmart where you are waiting for it to get cheap and end up waiting a very long time and never buying.

[John Hjorth]

I added to my Markel position.  Every time I hear their investor presentation in Omaha I have to buy more.

 

Anything in-particular from this year's presentation?  The stock seems a bit expensive to me here.

 

I wouldn't say anything in particular.  I was just reminded what a well run company this is, with very shareholder-oriented management and good insurance and investment teams.  I have held off buying because the stock did seem fairly priced to perhaps a bit overpriced.  But I think they are a long term compounder that I am happy to hold for a long long time, most likely the rest of my life.  And if they continue to compound decently, 20 - 30 years from now my entry point won't matter that much.  I didn't want this stock to be like a Berkshire or a Walmart where you are waiting for it to get cheap and end up waiting a very long time and never buying.

 

Thank you for sharing your experience here, Jeff. It's a comforting read. It must now be about 5 years since I bought MKL for the first time. The Markel people are so humble and focused on doing their own stuff, their way. It's so easy to hold - I have never had a negative surprise with it so far, and it's just doing fine. And yes, the entry point does not matter that much real long term.

[petec]

It is based on relative purchasing power, term spread and cash interest rates. The mexican peso right now is very undervalued on rppp (~35%) against the USD and ranks very high on term spread and interest rates. Ruerd Heeg on Seeking Alpha has some good articles on currencies.

 

Seems dangerous! I live in Mexico and we are about to elect a new president and part of congress. The candidate that’s leading (by a lot!) is clearly socialist and against market systems. This doesn’t mean that if he wins he is going to nationalize private companies or move against industry, nor that congress will approve such decisions, but he may control an important part of congress and indeed make some moves against free markets.

 

The peso is reflecting some of these fears and if I were to bet (I’m not), I would bet against the peso!

 

I base my investment decisions on facts, not on news or emotions. But hey, that makes a market. Maybe i am wrong.

 

Currency speculation is precisely that, speculation. And facts tend to be deceiving when dealing in an speculating environment, but seems you are comfortable and convinced of what you are doing. I was just trying to point you in the direction of some “facts” you consider news or emotions, so be my guest!

 

 

Well, I mostly agree with that.  But, if the currency position is underpinned by PPP (purchasing power parity) analysis, it becomes a value investment.  Essentially PPP is fundamental analysis performing a relative valuation of two currencies.  My vague recollection of the PPP literature is that currency valuation gaps revert, but this can typically take 6 or 7 years.  So, a ~35% valuation gap is great, but the returns could quite possibly be disappointing if the reversion takes too long (ie, 35% in 7 years would generally be a disappointment, even if you also had a 3% annual coupon).

 

Personally, I usually place currency into the "too hard pile" with the exception of the CAD/USD trade.  That latter trade is so important that it needs to at least be part of any Canadian investor's thought process, even if getting it right can only be done at the extremes of PPP.

 

 

SJ

 

That's why you leverage the currency trade using futures OR the currency isn't the investment. I use opportunities like this to pick up foreign assets on the cheap. Typically when the currencies are cheap, it's due to capital flight, which means risk assets are cheap as well. So don't buy pesos - go on hunt for risk assets denominated in pesos.

 

Using $ to buy cheap assets means you get the same typical appreciation when the recovery occurs, but also the 20-30% currency kicker compounding the gains on top of that. There were some large, recongizable names in Brazil/Russia that returned 300-600% in USD terms in the 12-18 months following early 2016 due to the dramatic revaluation in earnings multiples AND currencies.

 

 

Yep.  I do that for CAD/USD.  Try to find something cheap to buy using the currency that's also cheap.  Easier said than done, but if you can find something cheap, it's nice to not be taken out behind the wood pile when the currency reverts.

 

 

SJ

 

MXN is indeed very cheap here. The bull case is that the outgoing government has done deep pro-business reforms that AMLO (if he wins) could find hard to reverse; that NAFTA will probably be renegotiated and if it’s not trade will continue under WTO rules which are not that much worse for Mexico (plus, Mexico is super-competitive at the moment given the currency and what’s happened to wages in China); and that AMLO doesn’t talk about running big deficits or interfering with the independence of the central bank (he’s left of centre but he’s moderated his views over the years and did a pretty good job as mayor of Mexico City).

 

The bear case for me is that presidential terms are 6 years. AMLO can start being fiscally conservative but social programs have a habit of mission creep so by the end of 6 years the situation can be very different. And presidents are limited to one term so what’s the incentive to keep things under control latterly? MXN is undervalued but it might well stay that way, if AMLO wins.

[frommi]

MXN is indeed very cheap here. The bull case is that the outgoing government has done deep pro-business reforms that AMLO (if he wins) could find hard to reverse; that NAFTA will probably be renegotiated and if it’s not trade will continue under WTO rules which are not that much worse for Mexico (plus, Mexico is super-competitive at the moment given the currency and what’s happened to wages in China); and that AMLO doesn’t talk about running big deficits or interfering with the independence of the central bank (he’s left of centre but he’s moderated his views over the years and did a pretty good job as mayor of Mexico City).

 

The bear case for me is that presidential terms are 6 years. AMLO can start being fiscally conservative but social programs have a habit of mission creep so by the end of 6 years the situation can be very different. And presidents are limited to one term so what’s the incentive to keep things under control latterly? MXN is undervalued but it might well stay that way, if AMLO wins.

 

Thanks for your post! I get paid 5% (interest rate difference between USD and MXN) while waiting for the revaluation with the futures (this is embedded in future prices), so i have time on my side. And because the spread between 10y (inflation expectations) and cash in MXN is zero right now it is very unlikely that inflation/currency devaluation destroy my returns here. Thats what this currency system is all about. But if the spread widens it might be that the system will move me to another currency. I only do this with currencies that have inflation rates below 10%, so MXN is close to this barrier as well. Long term this system has backtested with 5-7% annual returns and since i do this with futures it is on top of every thing else, its literally free alpha. I came to this system while searching for ways to cheaply hedge my currency exposure because i had huge currency losses over the last year that were completly avoidable using this system. If in 3 years i come to the conclusion that it doesn`t work for me, thats fine, at least i tried. But over the last 6 months it has worked as expected.

[nickenumbers]

I took a long term position in Facebook [FB] stock and a medium term position with options in FB, today.

 

Over the last couple of weeks I have been reviewing, Facebook, Amazon, Apple, Netflix, Google, Microsoft and Oracle.  Twitter and Snap.  Revenue, Rev Growth Rates, Net Income, NI Growth Rates and Margins, with Margin Growth rates.  The story that that data tells is pretty interesting.

 

I have also been thinking about the intangibles of the products.  Facebook based on current prices and current product offerings is a high probability treasure, I believe.  Plus they still have room to grow.  FB is not so large that there is no more room to grow.  [Apple and Google have his problem of being too big, little room left.]

 

Not only does it own the FB platform, but it has Instagram, WhatsApp, and the messenger products.  It has the Story component of Insta, and its products are very very sticky.  There are not real substitutes for what it does.  And when everyone is using a platform, FB, Insta, it forces everyone to use it even more.  Becomes a self fulfilling prophecy.  Network Effect.  Zucker is young and fanatical for what he does...  almost maniacal..  That is actually a good combination.

 

FB should not be priced as low as it is with the growth rates that it has.  I think the political risk and Zucker testifying in front of congress is freaking everyone out.  So, there is some political and regulatory risk.  [Event Driven opportunity for us.]

 

I think it has a couple of years to continue to grow and I feel pretty good about it over the next 12-18 months..

[Dynamic]

I've sold my entire Apple (AAPL) position today at around $188.42 USD (£140.73 GBP) leaving me about 28.4% cash (previously 0.13%), 68.4% BRK.B, 2.2% my spouse's ShareSave employee option scheme, and a tiny few dribs and drabs in HPE, HPQ etc.

 

This is not a bearish move on AAPL, although I may have estimated that I was selling near a short-term high, hoping not to lose too much in the many days it may take to shift the proceeds to their new home and possibly reinvest at least some of it into AAPL.

 

This sale is within a UK ISA so no tax consequences on this sale, though I'll be withdrawing the proceeds from the ISA and the ISA annual subscription limit is high enough that my spouse and I can add back at a reasonably high rate between us in future if we want to tax-shelter some of our investments and simplify our tax returns too.

 

We also have a UK Tax Free Capital Gains allowance for investments outside the ISA, and I'm both shifting some money into an alternative brokerage account in which I may well repurchase a good chunk of Apple (and be eligible to file W-8BEN and reduce my withholding tax on its dividends from 30% to 15%) and intending to make an alternative investment with some of the proceeds, which will mark a departure, as it's not the sort of thing I would be mentioning here.

 

As I said I may well repurchase a pretty good position in AAPL within the new account, but a certain amount of my strategic risk tolerance may influence the proportion I take on in the near future.

 

My post-mortem on this investment so far is a pleasant one, much better than my meagre sub-market returns from IBM and WFC. I'd say this was one of my best high conviction ideas, and I still think it presents above average compounding opportunity going forward. The purchase at $95 (and sale of about three tenths of our BRK.B at $142 to fund it) was what I call a Value Trade, where I was pretty convinced that the Price to Intrinsic Value ratio of BRK.B was much higher than that of AAPL, so it made sense to trade up to the maximum AAPL exposure I was happy with to really take advantage of my high conviction.

 

My purchase notes aren't the easiest for an outsider to digest - just a dozen lines in a single spreadsheet cell, so I won't paste them here, but all the qualitative markers held up, the pricing power was demonstrated very strongly by iPhone X in particular.

I purchased at approx $95.00 at an earnings yield of about 9.5% (10.4% net of cash per share).

 

My total return to date has been 118.99% in GBP, 102.33% in USD in a few days over 2 years. 3.6% of the return was in dividends net of 30% withholding tax (or about 5.1% if untaxed), and most of the dividends except the May 2018 one have been reinvested into BRK.B.

IRR = 48.26% p.a. in GBP (beating the cost-free FTSE100-TRI IRR by 31.69%)

IRR = 42.44% p.a. in USD (beating the cost-free SP500TR IRR by 24.76% in USD, or 25.88% in GBP, thanks to dividend currency exchange timing)

 

In reality withholding tax wasn't a huge hit on my IRR in Apple to date.

 

If I continue to hold from roughly current prices I wouldn't expect more than 15% IV per share compounding at the most, and probably somewhere above 10% with luck, which is still good, and I think AAPL is a reasonable purchase at this price. To me at current prices, BRK.B and AAPL offer fairly similar prospects (my imagined distribution of Price to Intrinsic Value ratio is tighter around BRK.B and broader around AAPL (where IV is less certain), but there's a lot of overlap so it's not clearly worth trading one for the other in a Value Trade).

[Liberty]

Congrats and the successful investment, Dynamic, and thanks for sharing your post-morterm with us.

[SafetyinNumbers]

Added a little more PPR.TO.

 

I think this article shows that we are getting closer to formalization of Quebec hydrocarbon rules and that the government is serious about the rule of law. QEC.TO indicated in quarterly result that they expect the formalized rules to be out by end of Q2. I also expect Q2 cash flow to show significant improvement over Q1 with higher realized prices and lower costs/boe (on higher production) leading to higher netbacks.

 

https://www.ledevoir.com/societe/environnement/528583/quebec-veut-faire-taire-l-opposition-a-l-exploration-petroliere-en-gaspesie

 

 

[frommi]

DDR common and calls, spinoff in July, same playbook as SRC. "New DDR" is valued similar as BRX right now, which is already damn cheap, but the assets that are spinned are surely not completly worthless.

[Dynamic]

Congrats and the successful investment, Dynamic, and thanks for sharing your post-morterm with us.

 

Thanks. I imagine it'll be a long time before I find another investment like that, but I'm sure glad I took Charlie Munger's advice to really take a big position with a truly high conviction idea.

[Lance]

PM

 

Thanks

Lance

 

[gfp]

Berkshire and Eurobank today.  Liberty Global last week.  Love BRK at $470 Billion.  10% of that is Apple alone

[Broeb22]

LXFT on Friday.

 

LXFT can likely grow @ 15% CAGR for an extended period, and its operating margins should be able to increase 50% once UBS/DB headwinds subside over the next 2-3 years.

 

Business model is a lot like Cognizant's except the work they do is more technical and customer-facing.

 

Kerrisdale wrote this up a few years ago, and the thesis has largely stayed the same despite a pretty large dip in the stock price, mainly due to continued issues at DB/UBS.

 

Closest comp, EPAM trades at approx. 30x FCF, while LXFT trades for approx 15x (at lower margins than EPAM, for now). I don't used their adjusted earnings which are BS and add-back significant stock-based comp. My estimate of cash flow adds back everything but stock-based comp.

 

 

[John Hjorth]

Berkshire and Eurobank today.  Liberty Global last week.  Love BRK at $470 Billion. 10% of that is Apple alone

 

I agree. Awesome price offered [around 190, or a bit below] for this company by the market on an eventful day. Intrinsic value in the area of 250, or above.

[Spekulatius]

Bought CUERVO.MX, BRK.b and KML.TO today

Long Tequila, insurance and steel pipes.

[Lakesider]

Upped position in NNW.fra to be my largest.

 

[John Hjorth]

... Long Tequila, insurance and steel pipes.

 

*thumb up*  [ ; - ) ]

[Guest longinvestor]

Berkshire and Eurobank today.  Liberty Global last week.  Love BRK at $470 Billion. 10% of that is Apple alone

 

I agree. Awesome price offered [around 190, or a bit below] for this company by the market on an eventful day. Intrinsic value in the area of 250, or above.

 

It’s still selling for more than 1.2x BV and per Market Analysts like Greg Warren of Morningstar, “Many think” that BRK stock got ahead of itself in 2017.