Thursday 31 January 2019

The Road to Serfdom: How identity politics and socialist-communist ideology are intimately linked

In the world of investing, politics is a little bit like economics. Despite all the incessant media chatter, most of the time it doesn't matter very much. However, occasionally, it matters a great deal (e.g. during the US housing bubble and the ensuing GFC). Politics generally doesn't matter too much, as long as policies do not swing to the hard left (not to be confused with the center-left), where property rights and economic freedoms start to get seriously undermined. Those that say buy and hold always works, have clearly never invested in a country overrun by socialism/communism. Buffett has a strongly-held view that the US "has a system that works", but it never malfunctioned in his lifetime, and so is potentially outside the range of his contemplated experience.

The art of worldly wisdom, smoking, and British American Tobacco

When students study either undergraduate finance or an MBA, they are taught various methods of valuing companies - primarily discounted cash flow models, utilising appropriate discount rates (or inappropriate ones - CAPM has been long debunked). The problem with this valuation education is that the mathematics involved in valuing a company - given certain cash flow and discount rate assumptions - is trivially easy. The hard bit is figuring out what the likely cash flows will be. And finance degrees/MBAs offer virtually no useful instruction in this regard.

Monday 28 January 2019

Apple's strategic dilemma

After a heady run, Apple has been a poor performer over the past several months, and has de-rated to levels that have started to attract value investor interest. Peters-McGregor, for instance, recently purchased shares, outlining all the traditional strengths the bulls have historically identified with Apple (brand, customer lock-in, growing services), and that the stock is now on only 13x (and 11-12x ex cash).

Saturday 26 January 2019

Fishing where the cod is, and Munger's stunning rebuke of many 'value' investors

I've been thinking a lot over the past few years about some of the things I seem to be doing differently to the vast majority of self-described value investors. I just look at companies all day and try to value them, and I buy the ones I think are the cheapest. Presumably, most other value investors are doing the same thing. And yet, for years I have seen many self-described value investors complain incessantly that they can't find anything to buy - often organisations stocked with large teams of people. Some of them have closed shop as a result.

Friday 25 January 2019

The capacity to suffer, LCV/CAC, and Capital One Financial

Earlier this week, Capital One Financial (COF US) - a stock I own - announced a 4Q18 result which, while above expectations at the EPS line on a reported basis, was below expectations after excluding various 'one-off' items. Markets sent the stock down 6.2%.

Wednesday 23 January 2019

Is Netflix screwed?

Netflix has become a darling stock over the past decade (despite a moderation in the euphoria of late), and is an honourary member of the FANG club. It is seen as one of the new breed of incumbent online monopolies, and trades at more than 100x current earnings. However, to my mind, many investors seem to be ignoring some fairly important realities/risks, and believe it can be argued that Netflix is more akin to a Tesla than an Amazon - i.e. a company that is set to become 'just another media (auto) company' that will soon have to compete with many seasoned competitors in possession of far greater financial resources. It's going to be interesting to see what happens.

Tuesday 22 January 2019

US cultural breakdown, and identity politics run amok

Fairly extraordinary things are currently happening in US popular culture. A short clip of a native American man banging a drum near the face of a smirking 15 year old white kid, who appeared to many to be taunting the man with his expression, set off a firestorm of controversy over the weekend, in both the mainstream media and twittosphere, with the level of vitriol directed at the kid reaching almost unimaginable levels.

Sunday 20 January 2019

Worst marketing campaign ever...?

Ominous music plays. "Women, is this the best we can do, really?", booms a voiceover. Scenes play in the background of women being hysterically emotional, falsely accusing people of rape, bickering & bitching amongst each other, being ditsy blondes, and exhibiting all sorts of the worst cliched 'toxic femininity'.

Saturday 19 January 2019

Greek bank update: The importance of regulatory forbearance

In November of last year, I blogged about the Greek banks, and specifically Eurobank. Since that time, Greek bank prices have remained under pressure, falling about 20%, although Eurobank has bucked the trend somewhat, rising 10%. It is nevertheless down about 10% YTD after rallying in late 2018, underperforming what has been a strong rally in global bank share prices this year.

Thursday 17 January 2019

WSJ exposes corrupt hospital practices that inflate healthcare bills

Last year, I discussed how corrupted incentives have acted to inflate drug prices well above what would have occurred in a properly functioning market. As noted at the time, this is just one small piece of the complex puzzle of why US healthcare costs remain so absurdly high (18-19% of GDP, more than twice the OECD average, which is itself far from optimised, and continues to rise).

In December, the WSJ ran an excellent article/expose on another feature of the system that is well worth discussing. I highly recommend the article be read in full (paywall). The article highlights how increasing market consolidation and 'vertical integration' amongst hospital networks into the provision of primary healthcare services, coupled with a third-party payer system and a lack of price transparency, have all contributed to the cost of labs tests and other tests & procedures all being grossly inflated.