Monday 29 January 2018

Market efficiency and Telecom Italia Savings Shares

The market is supposed to be efficient. There are a lot of smart and hungry investors out there competing vigorously with one another to feast over whatever bargains the market happens to be offering up, if any. These efforts are supposed to neutralise each other, and drive a high level of market efficiency. And yet, in practice, I continue to be confronted on an almost daily basis with the most bizarrely obvious mispricings, and sometimes to a degree I can scarcely believe.

Bitcoin holder alert: financial libertarians beware

A few days ago, news emerged that Japanese cryptocurrency exchange Coincheck had been hacked, with more than US$500m worth of digital tokens reported to have been stolen. This is just the latest in a string of cryptocurrency exchange hacks. Back in 2014, for instance, Mt Gox - then the largest Bitcoin trading exchange in the world, handling an estimated 70% of all global Bitcoin trading - reported that 850k Bitcoin had been stolen (about 4% of the total amount of Bitcoin that will one day be on issue, and 'worth' some US$9.0bn at today's prices). If you were one of the unlucky customers that held Bitcoin or other affected crypto custodised by these exchanges, then tough luck. Your money is gone, and you have no recourse.

Sunday 28 January 2018

Which job offer would you prefer? A value vs. growth allegory

Suppose I was to offer you two job opportunities. For one, I would pay you a flat US$500k a year, in perpetuity (the value option). For the other, I would pay you US$100k a year to start, but would increase that by 20% per annum thereafter (the growth option). Which one would you prefer?

Saturday 27 January 2018

Bill Miller & the coming equity bubble

There is currently a generally held view that one of the biggest risks global equity markets face at present is that interest rates rise more rapidly than expected (perhaps triggered by inflation stirring). I have, to some extent, shared that view. However, Bill Miller - an investor I rate very highly* - has just posted his 4Q letter to investors, and in it, he weighed in on this issue with an interesting perspective:

Wednesday 24 January 2018

Finding investment ideas, Brighthouse Financial; Dignity plc; and favouring breadth over depth

I am often asked how I source my ideas - particularly operating as a one-man band running a global equity fund. I currently have approximately 150 stocks in my portfolio across more than a dozen countries, and typically generate about 4-5 new ideas a month. This month has been particularly productive - I have unearthed 10 ideas, or nearly 1 every 2 calendar days, and if I work in a focused manner, I am sometimes able to go at a rate of 1 a day (so much for global markets being devoid of value opportunities).

Saturday 20 January 2018

Why US drug prices have been rising, not falling

The US pharmaceutical industry is fundamentally broken. As has now been widely publicised, drug prices have been rapidly rising for several decades now, and the pace of increase has accelerated in recent years, with the price of a number of low-volume highly-specialised drugs in many cases increasing by several hundred percent. Valeant Pharmaceuticals and Martin Shkreli have been obvious offenders, but the practices have been systemic right across the industry (Shkreli's main mistake was putting up prices a lot in one go instead of steadily over a decade, and doing so with such repulsive smugness).

Friday 19 January 2018

Exit humility; enter mental flexiblity

It is often said that successful investors require a paradoxical blend of confidence and humility. Confidence, it is argued, is essential so that an investor is able to maintain the courage of their convictions, and have the fortitude to go against the crowd when necessary. Humility, though, is said to also be an important counterweight, because a willingness to change ones views and admit that they are wrong is also absolutely essential. It is argued that too much unchecked confidence can lead to disastrous outcomes - too much risk taking, and an inability to correct mistakes.

Wednesday 17 January 2018

Why is society becoming so polarised?

We are currently living in an era of increasing societal polarisation, in which the level of popular angst, outrage, and disagreement over various social issues has reached fever pitch proportions. As has now been widely publicised, in the putative Land Of The Free, free speech has been under assault on college campuses for some time, attracting often violent opposition to guests speakers (Ben Shapiro recently required US$600k of security to be able to speak at Berkeley). Defenders of those speakers argue that freedom of speech is an essential institution that needs to be defended (and if not on college campuses, then where?), and that in many cases those speakers have valuable contributions to offer. Meanwhile, opponents claim that these speakers are actually just smuggling in racist, sexist, or otherwise objectionable views and hate speech under the guise of 'free speech'. What on earth is going on?

Sunday 14 January 2018

Multi-disciplinary thinking; the gender wage gap; and amoral markets

I am a big fan of multi-disciplinary thinking. I think it leads to vastly superior judgement, and in the field of investing, superior judgement is the cornerstone of generating superior returns. Investing is a competitive pursuit that requires one to have superior insights to one's competitors in the market, and multi-disciplinary thinking - because it is so rare and difficult - can act as an important competitive advantage in this regard. It is also important in the field of policy analysis and in many other fields where complex judgement is required (but unfortunately, is too frequently lacking).

Saturday 13 January 2018

The real (and misunderstood) economics of disruption

We are currently living in an era of putative radical disruption. New players such as Elon Musk's Tesla Motors are - it is argued - disrupting the automotive industry; online e-commerce is disrupting bricks and mortar retail - some would argue mortally; solar is disrupting the conventional power generation industry (so it is argued); Netflix is disrupting the media distribution and content industries; and WeWork the office space industry. I could go on. It is now reported that hundreds of privately-funded 'Unicorns' with mark-to-capital-raising valuations in excess of US$1bn now exist, all promising to uproot formerly incumbent and highly profitable established 'old world' businesses.