Category Archives: What we read

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 !!!

Some links

If you’ve got 2 hours time this week, don’t miss Barry Ritholz talking to Bond legend Bill Gross (Part 1, Part 2). HIGHLY RECOMMENDED !!!

The guy who blew up AIG’s sec lending is back as a hedge fund manager

Punchcardblog likes subprime retailer Conn’s

Nate from Oddballl finally goes activist on a small net-net company

Bill Gates released his personal annual report

Greenlight’s Q4 2014 letter including a comment on Citizen’s Financial

Target is another proof that retailers often work not well across borders

Some links

Don’s miss: 122 things you should know about investing from Morgan Housel

A great list of business/investment books from Farnam Street blog

Must Read: James Montier explaining why Shareholder Value is “The World’s dumbest idea”

Interesting panel discussion on Bershire Hathaway inculding Tom Russo and the CEO of See’s candy.

Review of an interesting book called “The Frackers”

A great TED Talk on “Leading like a great conductor” (by the way: There are a lot of great talks on the TED homepage, check it out)

Some links

Great article on the problems at Mc Donalds

Joel Greenblatt talks about his “new” strategy

Great analysis (part 1) of German Online tire company Delticom from Frenzel & Herzing

Damodaran looks at Brazilian Vale and Russian Lukoil.

Alphavulture has analyzed Clark Inc. which seems to be the Canadian version of Carl Icahn

Interesting analysis on the US shale oil industry and the 75 USD oil price (spoiler: Capex will go down A LOT)

The performance of companies, whose CEOs play a lot of golf, does not look so good. What about money managers ?

Don’t miss: Blogging luminaries on Charlie Rose (Josh Brown, Joe Weisenthal, Felix Salmon, Megan Murphy)

Some links

WertArt Capital with a potential German liquidation case UMS AG

Charlie Munger is still in great form at the age of 90 as Jason Zweig’s interview notes clearly show. He doesn’t like Benjamin Graham though……

Great FT Alphaville post why one should be careful with “high dividend paying” securities.

A collection of notes from the recent New York Value Investing congress

Good presentation from Carson Block (Muddy Waters) on activist short selling

Self driving cars: Tesla joins the hype, Google’s real world experience still seems to have room for improvement

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