Category Archives: What we read

Double Book review: Tim Clissold “Mr. China” & “Chinese Rules: Mao’s Dog, Deng’s Cat, and Five Timeless Lessons from the Front Lines in China”

Tim Clissold is an English guy who happened to go to China just when China was opening up to the Western world in the early 1990s. His first book “Mr. China” tells the story how he tried to set up and invest a 400 mn USD private equity fund in China together with an US Wall Street veteran.

This was clearly not an easy task. When, after visiting 100 or more companies, he finally found some to invest in, the real problems only began. Ownership rights in China are quite flexible and in his book there are a couple of in-detail stories what can go wrong in China. As a short summary I would say that actually almost everything can go wrong in China for a foreign investor. Contracts are worth nothing and more than once a manager disappeared with most of the money. In other cases, the old owner just built a new factory next to the old one and all the workers left for the new factory and so on and so on. An interesting details was the importance of company seals (“chops”). Those company seals are much more important than anything and the one who has those seals in possession can do anything.

It might be a severe case of confirmation bias but after reading this book I felt fully vindicated for not even considering to invest in any German or US listed Chinese companies (and yes, this includes Alibaba, Baidu etc.). If you can’t even control what’s happening when you are in the country how should you have any chance if you are only invested via several questionable legal constructs.

Clissold makes it especially clear that Chinese thinking is entirely different from western thinking when it comes to business and rules that we take for granted just do not apply or even exist in China.

The second book is a more focused story on his second attempt in China, where he was called in to solve a difficult situation with regard to a big Carbon credit project and then started out to set up his own Carbon Credit investment fund in the mid 2000s. Of course he encountered the same problems as in the first try but he tried to counter them with more typical Chinese tactics which seemed to have worked better. In the end this project didn’t work either as the price of Carbon credits collapsed during and after the financial crisis.

The second book also includes more historical and philosophical background on China which makes it a “deeper” read than the first one.

Overall I can recommend both books to anyone who is interested in China in general and investing or working in China specifically. Although they are a lot of “How China thinks” books out there, this is one of the few with really first hand experience. And the books are quite well written, too.

Some links

Thanks to a stock forum I discovered that John Hempton from Bronte is issuing a monthly letter for his Australian fund (H/T qed1984). The last one about China is brilliant.

An interesting article about a Whistleblower at Halliburton with some insight into the arcane world of “revenue recognition”.

Charlie Rose 30 minute interview with Ginni Rometty, CEO of IBM

Q1 report of Centaur, the US value fund run by Zeke Ashton

Must read: Roddy Boyd exposes US pharmceutical company and stock market darling Insys Therapeutics which seems to be literally “killing it”

A couple of presentations from the Ben Graham Centre 2015 Conference

Finally interesting research from German StarCapital on country by country valuations adjusted for differences in the underlying industry sectors

Some links

The Brooklyn investor looks at the JPM annual report and Loews

David Einhorn’s presentation from the Grant’s Investment Conference 2015

A new White Paper from AQR called “Fact, Fiction and Value Investing” (h/t Valuewalk)

Frenzel & Herzing look at Greek company Metka

Is Google the next Microsoft ?

Some interesting thought about the issues in Turkey

And finally, Hedge Fund billionaire Paul Tudor Jones wants to change capitalism

Some links

Looks like that the 3rd Romanian stock gets finally listed in London: Fondul Proprietatae (h/t valuewalk)

Good (partial) interview with the guys of Boyles Asset management

Wertart has a post on French Microcap Microwave Vision

The UK Value investor with a great analysis on what went wrong with his Balfour Beatty investment

FT Alphaville has some issues with Greak stock Follie Follie

And finally the MUST READ: Credit Suisse Global Investment Return Yearbook 2015 (h/t Meg Faber) with, among other, some very interesting 115 years (!!!) historical data on industries

Some links

The founder of Singapore has died at age 91. Great article from the Telegraph on his life and achievements.

MUST READ: Howard Marks on liquidity

A new investing blog called jnvestor with some pretty good write ups. Keep it up mate !!!

A very good post about market timing and “cash addiction”

Notes from the Daily Journal 2015 meeting with great quotes from Charlie Munger

Amazon with a direct attack on all cloud storage competitors

Finally, the Brooklyn Investor nicely wraps up the HeinzKraft case

Some links

Activist fund Marcato’s presentation on BNY Mellon including a good insight into the business model of custodian banks (h/t market folly)

Alpha Vulture blog with a valuation update of FFP Holding (Peugeot)

Must read: Sequoia Funds 2014 letter (h/t market folly)

“Appraisal Arbitrage” – An easy way to make money for sophisticated investors? (I don’t think this works technically in Europe/Germany).

A very inspring TED talk from Ricardo Semmler, previous CEO and owner of Brazilian SEMCO on how to run a company without (almost any) rules.

Some signs that the start-up boom might be peaking for this cycle. Another, much surer sign is when the CEO of a struggling coal based German utility goes to Silicon Valley for an inspirational vacation trip.

Book review: “The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters ” – Gregory Zuckerman

“The Frackers” is the story about a bunch of crazy US “wildcatters” who managed to find a way to extract enormous amounts of oil and natural gas from rock formations which were thought (by conventional wisdom) as not to be worth drilling.

They way they achieved it was actually not to invent anything new, but to combine and refine existing technologies (horizontal drilling and fracking) which allowed them to produce oil and gas at competitive costs.

For potential investors there is a lot to learn in the book, among other stuff:

1. Being too early is the same as being wrong. It took a long time to make it work and those who started early often did not have the means to pull through.

2. One of the key innovations was to use less chemicals than before in the fracking fluids. One more example that innovation often means less and not more

3. The guy who had the breakthrough idea with adding less chemicals to the fracking fluid did actually not profit much from his invention

4. Established companies like Exxon, Chevron etc. mostly missed the opportunity because they relied on “conventional wisdom” which said that shale is not relevant. Funny enough, one of the best shale regions (Barnett) lies literally below Exxon’s headquarters. They were sitting directly on top of a big energy source but ignored it and went to Indonesia, Nigeria etc.

5. The most aggresive and fastest growing “frackers” did not produce the best long term returns for shareholders. If you compare for instance the two companies of the main characters, Aubrey McLendon’s highly leveraged Chesapeake Energy against Harold Hamm’s conservatively run, 70% CEO owned Continental Resources, it is not difficult to see which is the better long term concept for shareholders:

For non-US readers like myself it was also interesting to see how the dynamics between wildcatters and land owners play out. Without landowners having a profit stake in the production, getting permission for fracking would be much more difficult. This is maybe the reason why fracking in Europe will never get done as the government has the monopoly on natural resources.

Another thought: I think in the current discussion of how the oil price impacts the US economy, it is not enough to look just at the direct jobs created by the E&P companies. If you assume that in total, the shale boom increased daily US oil production by 5 mn barrels, at an oil price of 80 USD per barrel, around 150 bn USD have flown back into the US economy annually instead of going to OPEC countries or other non-US oil producing countries. I guess fracking had a much bigger impact on the US economy’s revival since the financial crisis than the Fed.

Finally, there is a fascinating side story about the guy who is running Cheniere Energy, Charif Souki. His great idea was to import natural gas into the US and he raised several billion USD to build a huge gasification plant on the gulf coast. He clearly did not see fracking coming and his investment was worthless. Nevertheless, he was able to raise another few billion bucks and retool the facility in order to export natural gas.

This “double or nothing” gamble seems to have paid off. Seth Klarmann by the way, has just doubled its stake in Cheniere, making it their biggest public listed position at around 1,7 bn USD.

Overall, I found the book very interesting and I would say that it is a MUST READ for anyone interested in the oil industry. It is well written and entertaining as well as informative. Highly recommended !!!

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