The subtitle of this book says “How the middle class joined the money class”, which describes exactly what this book is about.
The book covers the period between the early sixties and late eighties, a time were many financial products for “ordinary” citizens were invented and today are used by almost anyone.
First of all a big “thank you” to all readers who either posted their suggestions as comments or sent me Emails. It definitely looks like that Australia is an interesting stock market and I will have a lot to do and too learn…..
DWS, an Australian IT consulting company is the first Australian company which I found interesting. Why ? There are some aspects which I like and which have worked for me in the past:
A very nice analysis of Mastercard
Deep Value in Singapore: PNE Industries (Alpha Vulture)
Nils has uncovered a potential fraudulent stock scheme at HQ Life
Very good advice: Ignore marketing for financial products. Always.
Zeke Ashton (Centaur) 2015 letter
Very interesting AMA (Ask Me Anything) on Reddit with a Long/short Hedge Fund Manager
2016 wil be another tough year for (Swiss) watchmakers
Up until now, I only looked at one single Australian stock: Australian Vintage two years ago. I didn’t like it mainly because I thought the interests between Management and shareholders were not aligned. Interestingly the stock jumped in the last weeks after doing nothing for 2 years.
Australian stock market facts
Let’s start with some facts about the Australian stock market. According to Bloomberg, there are 2.059 Australian companies listed on the Australian stock exchange, total market cap is 1.59 tn AUD.
No quick fixes for American Express ? And a good post from Punchcard blog on Amex and competition.
Interested in Australian stocks ? Try the Forager Fund blog and the fund reports.
Good post on Italian stocks (Finmeccanica, Piaggio, CIR)
Damodaran on negative interest rates and valuation
The story of “fracking pioneer” Aubrey McClendon
Muddy Waters has updated its Casino short thesis (h/t Valuewalk)
This is clearly a luxury problem: Imagine you bought a stock and for some reason the stock price goes up very quickly let’s say by +40% or so within a few weeks.
What are you going to do ? Sell, buy or do nothing ?
In my case, this “problem” now hit me with Gaztransport. I reviewed Gaztransport first in January 2016 at a price of around 34 EUR. This is what I said back then:
Under those assumptions my results were the following:
10% discount rate: 20,80 EUR per share
15% discount rate: 14,26 EUR per share
So now one could clearly challenge my “model” and tweak it somehow, but in general it looks like that GTT is not a bargain at current prices (34 EUR). To me it rather looks like that the current valuation already implies a certain value for the LNG ship fuel “option”. Therefore GTT at current prices is not interesting to me as an investment.
Executive summary: Although American Express looks cheap based on their historic profitability, the company is subject to rapid technological change and fierce competition in the payment industry. To me it is not clear how this will work out going forward, so for the time being I will not invest but look deeper into the industry.
American Express is well known in value investment circles because Buffett owns ~15% of the company and made a lot of money with it.
Recently the stock price came under pressure mainly because:
The stock price clearly has suffered and is down more than -40% from its peak in late 2014 /early 2015:
David Merkel with some good observations on Berkshire’s 2015 annual report with a focus on insurance
How UK’s Ratesetter “transforms” from “peer-to-peer” to pretty “ordinary” lender
Good write-up about Moleskine Spa
Long but good Forbes story on Visa
Larry Swedroe likes Emerging Markets stocks
Some great investment advice from Jason Zweig: Just do nothing
One general remark upfront: The 2015 annual report wasn’t that exciting in my opinion. Actually, I didn’t plan to write a post on it. However, after reading a couple of posts on the topic, I though maybe some readers are interested because I haven’t seen those points mentioned very often elsewhere.
GEICO had a pretty bad year in 2015. The loss ratio (in percent of premium) increased to 82,1% (from 77,7%), the Combined ratio increased to 98% and the underwriting profit fell by -60%. Buffett talks about the cost advantage a lot in the letter, but the only explanation forthe increase in loss ratios are found in the actual report:
“Quality Investing” is one of the growing number of books from Asset Managment firms where they outline their philosophy. I have reviewed already 2 of them, “Capital Returns” from Marathon Asset Managament and “Simple but not easy” from Oldfield Partners.
“Quality Investing” is about London based AKO Capital Management, a company with currently around 9 bn USD under management. The book itself was written by Lawrence Cunningham, a guy who is often described as a “Warren Buffet” expert.
As the title of the book says, AKO focuses on “High Quality” businesses which they intend to own for the long term. A “High Quality” business in their view is defined as a business which can earn high return on capital for a long period of time. In their view, such companies are often undervalued even if they are more expensive than market averages.
The book then walks through different aspects of how to identify “quality”. According to them they look for:
Companies they like are:
L’Oreal, Diageo, Geberit, Assa Abloy, Handelsbanken, Unilever, H&M, Inditex, Luxottica, Rolls Royce, Atlas Copco, SGS, Intertek, John Deere, Syngenta; Wärtsilä, Kone, Chr. Hansen, Ryanair, Hermés, Novo Nordisk, Nike; Fielmann, Experian
What makes the book authentic is the chapter about “pitfalls” and some case studies where they made mistakes. According to them, the most important pitfalls are
They mention specifically Saipem and Tesco where they lost money and Safilo, Nobel Biocare and Nokia for “quality” companies who fell into those pitfalls.
The final section of the book looks at implementation of a “high quality” strateegy and especially the challenges
Overall I do think the book is quite good. I would recommend it especially for people who think about migrating from a more “Graham” based approach of value investing to a “Late Buffett/Munger” style.
For those investors who are already deep in “Munger territory”, the book will not present many new ideas but is maybe a good summary of many concepts. The book is also a great basis to build a “Quality check list”.
For me personally the chapters about industry characteristics and customer benefits were most interesting as I haven’t paid a lot attention to this.
Quibbles:
The only quibble I have is that they claim in the books many times that quality companies are not trading a the premium that would be justified. However, they do avoid mentioning anything quantitative, i.e. what premiums they are looking for and how they calculate it.
Of course they need to keep some of their “secret sauce” in order to justify the fees they are charging but as it is the book to me is kind of incomplete. As it is, the book is basically more like a “check list” with explanations than a real “investing book”.
Summary:
As described above, for anyone who wants to get into a more “late Buffett/Munger” style of investing, this is a very good book. Especially if you are looking to build a check list for assesing the quality of companies, this is a great start.
If you look for a “fully fledged” investment book, an important part (valuation) is missing. If I would need to decide between this book and Marathon’s Capital Returns, I think I would go for the latter.
value and opportunity 