David Einhorn’s Q4/2016 letter
Don’t miss: TVG Partners 2016 letter to shareholders from Mathias Saggau
David Merkel (Aleph blog) with a comment on the huge deal between AIG and Berkshire
A Bolloré “Video Pitch” from Greenwood Investors
Damodaran explains how to look at currencies within an equity valuation
´So far, my blog has been 99,9% “Trump Free”. As a German, I haven’t really followed what Trump did and said over the last decades so I think I am not able to form a qualified opinion about him or what he will do as POTUS.
I think it is also waste time to watch TV shows where German politicians debate what Trump will do or not because most of them don’t have a lot of background knowledge either. As with stock analysis, I am a big fan of “Primary resources” and so I decided that I should at least read one book co-authored by “his Trumpness” himself. There are many Donald Trump books out there but the first one from 1987 is “the Art of the deal”. I thought that maybe the first one is also the most authentic one.
The book starts with the description of a typical week of Donald Trump in early 1987. Clearly this is meant as a name dropping exercise to impress the readers about the then not so famous Mr. Trump. Indeed the list is quite long and interesting.
Michael Lewis is clearly “THE” author for financial books at the moment. His books are usually great to read, very well researched and a few of them have already turned into movies like “The Big Short”.
“The Undoing Project” is the story of Amos Tversky and Daniel Kahneman, two Israeli professors who developed the so-called “Prospect Theory” which deals with the behavioural “biases” that the human mind shows when deciding under uncertainty. And for which Kahneman got the Nobel Prize in 2002 (Tversky unfortunately died some years before that).
Up until Prospect Theory, the human mind was assumed to be perfectly rational for most theories dealing with human behaviour and decision-making. As stock investors we all know that human behaviour in the stock market is anything but rational, however only following the groundbreaking work of those two guys, we now have a more structured way to understand how the mind really works.
The book covers the story of this “unlikely” pair of academics who started this revolution plus some side stories about people who were greatly influenced by them, for instance in Basketball and Medicine.
The book describes in very great detail how the relationship between Tversky and Kahneman developed, how it was interrupted by the different Israeli wars, how they moved from Israel to the US and how it ended. To be honest, I found this a little too much detail. It is an interesting story , no doubt, but I guess a few pages less would have made the book better.
Towards the end I really had to force myself to finish the book when Lewis describes in great detail how they tried more or less successfully to counter their critics. I think this was my first Michael Lewis book where I seriously thought about not finishing it.
All in all I would say it is an OK book for people who like those kind of biographic books, however for people interested in the theory and topic itself, Kahneman’s book “Thinking Fast and Slow” in my opinion is the much better choice.
The Company / Spin-off
Gocompare.com (GoCo) has been spun-off from parent Esure in the beginning of November, a week before the US elections and only a few days before Italgas SpA. As a “parting gift”, Esure took out a special dividend of about 75 mn GBP financed by some net cash and a 70 mn GBP loan before spinning the company off-
In my understanding, the major reason for the spin-off was that Esure, the listed UK online direct insurer was short in solvency capital and that this transaction improved the solvency substantially.
Every Esure investor got one GoCo share for an Esure share. Interestingly, Toscafund, the second largest shareholder only holds 14% in Goco compared to 16,7 for Esure, so they seem to have sold some shares.
Blackrock’s stockpicking robots had a really bad year
Interesting interview with UK portfolio manager Richard Buxton
Good quotes from Daniel Kahnemann
Cliff Asness from AQR is always worth listening to
Meb Faber lists the “Cash Cows of the Dow”
China accounts now for 98% of Bitcoin trading and it has gone crazy
John Hempton has a very interesting post on when to average down into a stock.
As a summary, one should not average down into a stock if
I think this is already a pretty good advice, as a counter example he gives Coca Cola where one can average down “without much risk”. As this is a very interesting topic, I wanted to contribute my 5 cents to this:
Behavioural biases at work
In my experience, averaging down is often motivated by a couple of behavioural biases.
The major bias which “helps” investors and especially professional ones to average down in the wrong cases is in my experience the “over confidence” bias.
Guy Spier discusses his failed Horsehead investment
Michael Mauboussin on active vs. passive
John Hempton on when to average down
The Fundoo Professor and Charlie Munger on the diffêrences between buying and holding a stock
Eddy Elfenbein had a tough 2016, but his 2017 buy list is still a must read
Some interesting thoughts on Amazon’s “Operating System”
Nice story on Oscar, the US Health Insurance start-up
Performance 2016:
In 2016, the blog portfolio gained +12,42% (including dividends, no taxes) against 4,55% for the Benchmark (Eurostoxx50 (Perf.Ind) (25%), Eurostoxx small 200 (25%), DAX (30%), MDAX (20%)).
Some other funds that I follow have performed as follows in 2016:
Partners Fund TGV: +15,95%
Profitlich/Schmidlin: +3,13%
Squad European Convictions +18,51%
Ennismore European Smaller Cos -1,49% (in EUR)
Frankfurter Aktienfonds für Stiftungen +6,2%%
Evermore Global Value +21,5%
Greiff Special Situation +5,88%
Since inception (01.01.2011), this translates into +135,6% or +16,9% p.a. vs. 69,5% or 10,1% p.a. for the benchmark. Graphically this looks like this:
Oaktree Capital is an US-based listed asset manager specializing in alternative assets and more specifically in “distressed” securities. Co-founder Howard Marks became quite famous and is one of the most intelligent people in the investment industry. I had reviewed his book 5 years ago and read everything he writes with great interest.
Oaktree is clearly one of the “Highest quality” names in Alternative Asset Management with a very good long-term track record. A reader mentioned Oaktree in the “ideal company post” and as I had them on my list anyway I decided to make this my first analysis for 2017.
These days, negative news is everywhere. Brexit, Trump, Syria, Terrorist attacks, Monte Di Pasci etc. It is not that hard to feel depressed about the world and the future. As I mentioned earlier on the blog, sometimes it makes sense to follow Charlie Munger’s advice and “invert, always invert”. Therefore I tried to come up with some potential positive and surprising news of how the world could get better in 2017. Some of them are pure fantasy, some might actually happen, who knows ? In any case it was fun to come up with those ideas. “think positive” is clearly not a solution for every problem of the world but sometimes it just helps to change the perspective in order not to fall into the “everything is doomed” trap.
1. Italy has actually turned the corner. NPLs, which have been decreasing since Mid 2106 drop dramatically and are snapped up from investors. BMPS will be nationalized, the rest of the Italian banks privately recapitalized. Building activity soars in Italy but also in Portugal and Spain.
2. Battery technology & Electric Vehicles will make a break through, accelerated growth because of jump in new car sales and build up of infrastructure. Growth easily outpaces decline in traditional cars.
3. Break through for healthy organic food which enables many people to start farming and really make a living out of it. Rural areas get a real boost as people want to move back to the country. People eat more healthy food which lowers the cost for health care.
4. “Robots” will free up capacity from low value creation assembly line jobs to do really meaningful jobs (customer service, integrating refugees, caring for old and sick people, educating children).
5. Refugees create a large number of super innovative startups that contribute meaningful to GDP based on their experience from their home country (do more with less or nothing)
6. The Euro Zone and UK reach an agreement for the Brexit. As a result, UK will keep access to the common market but will pay for the recapitalization of the Greek Banking system. The EU will enlarge the franchise, grant access to the market against cash and will also recapitalize Portugal and Spain.
7. Donald Trump finds out that renewable energy is even better for energy independence (and jobs) than shale oil and gas. He will turbo charge the growth in the sector and will be known as the “Greenest President” in the history of the US. His Children accidentally had bought the majority of Tesla/Solar City just before his announcement. Musk makes so much money from Tesla which he puts into SpaceX and he will start his Mars mission already in early 2018.
8. A powerful and charismatic “Mahdi” appears and declares that peace is the ulitmate goal of Isalm. Terrorist attacks stop, the Middle East stops fighting and an “all around” peace treaty gets signed. Ultra orthodox muslims and Kurds get their own countries. Immediate rebuild of destroyed cities starts, driving growth for a decade.
9. Kim Jong-un in North Korea decides that he prefers a life as team manager of a US NBA team together with Denis Rodman as coach. North and South Korea are peacefully reunited. United Korea will grow by 10% plus for the next 10 years.
10. Donald Trump decides after 10 months that being President is boring and also bad for his Golf handicap. Vice President takes over.
value and opportunity 