The Hard Break: The Case For The 24/6 Lifestyle by Aaron Edelheit https://t.co/DiiyRAqnhY via @amazon pic.twitter.com/rUaWlNec0c
— Guy Spier (@GSpier) May 16, 2018
How to Choose Your Next Book https://t.co/QtfdcuOfh7
— Shane Parrish (@farnamstreet) May 15, 2018
Florian Schuhbauer sobre el Activismo en Europa
May 16, 2018 in Contenido Libre, MOI Global en Español, Traducciones
Recientemente hemos tenido el placer de aprender de Florian Schuhbauer sobre la inversión activista en Europa. Gestor de Active Ownership Fund, con sede en Alemania, Florian tiene un track record de creación de valor en empresas cotizadas europeas. Antes de lanzar su empesa, Florian fue socio de Triton Partners, una destacada firma europea de capital privado. Florian también ocupó puestos destacados en gestión de inversiones y operaciones empresariales en AVI/General Capital Group, Deutsche Post World Net & DHL Global Mail, Newtron AG y Dresdner Bank/Dresdner Kleinwort Benson. En Active Ownership, Florian se enfoca en realizar inversiones minoritarias importantes en un número limitado de Small- y Mid-Caps infravaloradas que se encuentran en el norte de Europa y también busca aumentar su valor a través de mejoras operativas, estratégicas y de gobernanza.
Role of Currency Hedging Within Portfolio of International Equities
May 14, 2018 in Letters, Portfolio Management, Risk ManagementThis article by Will Thomson is excerpted from a letter of Massif Capital.
What follows is a brief review of how we at Massif Capital understand currencies and manage our currency exposure within a multi-currency portfolio. This paper arose out of conversations and questions asked by current investors regarding our lack of currency hedges.
At the current time, our portfolio is exposed to the US, Canadian and Singapore dollar as well as the Euro. Despite the diversity of currencies, we maintain no currency hedges and are unlikely to at any time soon. We have pursued this strategy for two reasons, one practical and demonstrated, the other philosophical.
Practical Reasoning
The first issue we consider when thinking about our foreign exchange (FX) exposure is what we would be looking to accomplish with an actively managed FX strategy. Specifically, are we looking to manage risk or are we looking to enhance portfolio returns? Differentiating between the two goals is important. From our perspective, a return enhancement strategy is an alpha-generating strategy, which means it is a strategy based on a differentiated outlook for how a currency will appreciate or depreciate relative to another currency. As our investment practice seeks capital appreciation through careful asset selection and participation in the equity market, we do not engage in currency trading to enhance returns.
With respect to risk management, a key concern of ours, there is ample empirical evidence to suggest that currency hedging strategies are of little value-add to portfolio returns. Take for example a 2010 study conducted by Vanguard which found that over a 22-year period from January 1988 to January 2010 the average hedge impact was not statistically different than zero for currency-hedged portfolio of the MSCI World Index. Similar results were documented in a paper by Kenneth Fisher and Meir Statement which found that the realized returns and risk for hedged and unhedged portfolios were virtually identical during the 1988 to 2002-time period.
These results are unsurprising. To hedge well requires one to have an idea about the direction of a currency in relation to another. Unfortunately, as a paper by Kenneth Rogoff and Richard Meese found, exchange rate models and most expert forecasts were no more accurate than a random walk would be in forecasting changes in currencies a year out. If our ability to forecast currency moves is that poor, hedges would seem as likely to hurt returns as they would to help.
One final practical issue worth considering is the cost associated with implementing an FX hedging strategy. Although rather small, any strategy can only be properly assessed within the context of the return on the cash deployed. Research by Stephen Nesbitt indicates that hedging costs (using forward contracts) for an international equity portfolio are well north of 0.25% per annum on average. Given that long run studies cited above find almost no impact on returns for hedged vs. unhedged portfolios, even that small cost seems unwarranted.
Philosophical Reasoning
Our philosophical approach is consistent with the lack of demonstrated evidence that hedging currency risk is value added to a portfolio returns. Fiat money, as we know it, is not a commodity good, which means it has no scarcity, it is created at the whim of financial institutions and central banks. Fiat money is not tied the nature of the capital or assets it commands but instead to the abstract idea that the printer is credit worthy and/or a good steward of the yardstick by which we (society) have decided to judge value.
Given these realities, fiat money has significant limitations. When you measure the value of an asset in say US dollars, you are measuring its value in terms of US government liabilities. Decisions made in the future and promises made in the past by the government regarding spending will impact the money value of the asset being measured even if there has been no change to the true value of the asset. Fiat currencies are thus correctly understood as an investment in a government that can, at any given time, make decisions that impact the relative purchasing power over your wealth.
If a portfolio manager chooses to pursue an FX strategy to manage currency risk actively, they are implicitly consolidating all their risk in one currency and thus one government. Every currency has this risk, and so we choose to stay diversified in our currencies. As an investment in a country’s government, it seems prudent to have a portfolio of diversified assets in diversified currencies.
Disclaimer: Opinions expressed herein by Massif Capital, LLC (Massif Capital) are not an investment recommendation and are not meant to be relied upon in investment decisions. Massif Capital’s opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is limited in scope, based on an incomplete set of information, and has limitations to its accuracy. Massif Capital recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ regulatory filings, public statements and competitors. Consulting a qualified investment adviser may be prudent. The information upon which this material is based and was obtained from sources believed to be reliable, but has not been independently verified. Therefore, Massif Capital cannot guarantee its accuracy. Any opinions or estimates constitute Massif Capital’s best judgment as of the date of publication, and are subject to change without notice. Massif Capital explicitly disclaims any liability that may arise from the use of this material; reliance upon information in this publication is at the sole discretion of the reader. Furthermore, under no circumstances is this publication an offer to sell or a solicitation to buy securities or services discussed herein.
Apple: From Classic Ben Graham Deep Value Idea to Buffett-Style Compounder
May 14, 2018 in Case Studies, Equities, Information Technology, Large CapThis article is authored by MOI Global instructor Matthew Haynes, chief investment officer of 1949 Value Advisors.
One of the key takeaways for many shareholders who attended the 2018 Berkshire Hathaway (BRK) meeting in Omaha last weekend (including me) is the growing importance of Apple Inc. within BRK’s equity portfolio. After buying 75 million more shares during the first quarter of 2018, Apple is by far Berkshire’s largest equity holding in a public company. It was already Berkshire’s second largest position at the end of 2017, but now valued at approximately $45 billion, Apple is almost twice as big as its next largest position, Wells Fargo (~$24 billion).
This isn’t too difficult to fathom for those who are familiar with Warren Buffett and Charlie Munger’s investment style, although their recent foray into technology stocks might be (first IBM, which is no longer, and now Apple). Their preference for superior companies with defensible businesses (competitive “moats”) generating high returns on capital has typically meant investing in companies such as Coca-Cola, Kraft Heinz and many others, buying when their shares trade below intrinsic value. Very seldom does this quality-at-a-discount approach lead Berkshire to invest in average companies trading in deep-value territory. Apple is certainly not just an average company today, but for those with a long memory, Apple in 2003 was a classic deep-value idea that might have appealed more to Benjamin Graham than Warren Buffett.
For me, all the talk about Apple this past weekend in Omaha was a reminder of one of the greatest mistakes of my own investing career when I decided in 2003 that Apple’s new captive retail store distribution model was likely to burn a prodigious amount of its net cash, deserving of a further 10% discount to its then prevailing stock price before I felt we had a sufficient margin of safety. As Charlie Munger aptly said during a Berkshire Hathaway meeting many years ago, great ideas are too scarce to be parsimonious with, once found. I hadn’t yet learned that lesson.
As in life, mistakes in investing can be either sins of commission or sins of omission. Sins of omission in the investment management business are simply missed opportunities in companies that create significant value for shareholders over the long term. As an absolute return-oriented investor, I have always preferred to miss an opportunity than to experience a permanent loss of capital (a cardinal sin for value investors). In 2003, while working in Short Hills, NJ as Portfolio Co-manager of the Franklin Mutual Beacon Fund, we were picking through the wreckage of the technology, media and telecom (TMT) bust looking for interesting investment ideas. Keith Koeferl, one of the brightest investors with whom I’ve worked, brought Apple Inc. to my attention. The company had a relatively small market share in personal computers – a business that was experiencing rapid commoditization at that time, and I vastly underappreciated Apple’s devoted customer base and the genius of its visionary CEO and product development team.
If my memory serves me, Apple’s products in 2003 consisted primarily of Apple’s iMac, PowerBook and Macintosh personal computers and servers, and a new personal digital music device called the iPod was brand new. As a music lover, more than as an early adopter of technological gadgets (I’m far from it), I even owned an iPod back then, and I loved it.
Shares in Apple at that time traded near $12 per share, down from $70 at the peak of the TMT bubble three years earlier, and were backstopped in part by an estimated $10 per share in net cash and real estate value (our conservative valuation of its Cupertino, CA headquarters and land). This implied only a $2 per share valuation on Apple’s operating businesses.
Our offices were across the street from one of New Jersey’s upscale shopping malls, the Short Hills Mall. Keith and I decided to walk over for lunch to see the brand new Apple store there first hand. I remember my dismay when we arrived to find a very expensive and modern-looking Apple store staffed with many cheerful and eager employees, but not one single customer. This might have qualified as the old-fashioned “shoe leather research” that Mr. Buffett referenced during the Q&A in Omaha on Saturday, and I felt it was important to factor our findings into the valuation and appraisal. I determined, somewhat subjectively, that at $11 per share, or $1 per share implied value of Apple’s computer business would allow for a sufficient margin of safety against a permanent loss. Apple shares never got there.
With the benefit of hindsight, we were simply too early (and dead wrong) in our assessment of Apple’s retail strategy. The primary driver of Apple’s meteoric success has always been their products and brand loyalty. The loss-leading Apple stores were an unfortunate distraction from the more important innovative products they were developing and the compelling economics of their business.
In the period since 2003, Apple effected two stock splits – a 2-for-1 split in 2005 and a 7-for-1 split in 2014. This means the split-adjusted stock price of Apple in 2003 when I decided to pass on the idea was less than $1 per share. At today’s closing price of $190 per share, Apple continues to provide me with an important lesson about parsimony when evaluating great investment ideas.
Lastly, Apple serves as an excellent (and rare) investment case study that bridges the gap between the differing value investing styles of Benjamin Graham and Warren Buffett.
Nota bene: Fortunately, inefficient markets granted me an opportunity in mid-2006 to establish a meaningful position in AAPL on behalf of clients in the Lazard Classic Value – Global strategy, and again at the inception of the 1949 Global Value strategy in mid-2015.
This summary does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product. Any such offer or solicitation may only be made to qualified investors and only by means of an approved confidential private offering memorandum or investment advisory agreement and only in those jurisdictions where permitted by law. While all information herein is believed to be accurate, 1949 Value Advisors makes no express warranty as to the completeness or accuracy nor does it accept responsibility for errors appearing in the summary. This summary is strictly confidential and may not be distributed.
NOTA DEL EDITOR: Esta idea de inversión es obtenida de una carta a los inversores de Valentum FI.
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Facebook: Lo más importante del mes ha sido el escándalo de FB y Cambridge Analytica de filtración de datos. De manera muy resumida, en 2013 Aleksandr Kogan, investigador de la Universidad de Cambridge creó una app que instalaron 300.000 personas que compartían para uso académico sus datos y el de sus amigos. En 2014, para evitar abusos, FB limitaba el acceso de estas apps de datos. En 2015 FB se enteró que Kogan había compartido los datos con CA, prohibió el acceso de la app de Kogan a FB y pidió a Kogan y a CA que certificaran la eliminación de los datos, lo cual hicieron sin que fuera cierto. Nuestra opinión es que a falta de conocer la opinión de los reguladores (FTC, Europa), que se puede alargar mucho en el tiempo, el gran fallo de FB es no haber perseguido de manera más efectiva la eliminación de los datos.
This article is excerpted from a letter by Jim Roumell, partner and portfolio manager of Roumell Asset Management, based in Chevy Chase, Maryland.
Capitala Finance Corporation is a publicly-traded business development company (“BDC”) primarily engaged in making debt and selective equity investments in lower and traditional middle market companies, primarily in the United States. CPTA generally invests between $5.0 million and $50.0 million per transaction.
At December 31, 2017, the reported net asset value (NAV) per share was $13.91. We purchased shares during the first quarter of 2018 at an average cost of $7.17. This represents a very attractive discount to NAV of approximately 48%.
CPTA currently pays a quarterly distribution of $0.25, providing an annualized distribution yield of 14% based on our purchase price. While we find the yield attractive, that was not the primary basis of our investment thesis. Rather, it was the significant discount that the stock traded at relative to the underlying NAV of the company. The primary assets of the business are loans and equity investments which are carried at estimated market value. These market values are reviewed periodically by independent sources (external auditors) and filed quarterly and annually with the Securities Exchange Commission. As such, we have confidence in the reasonableness of the reported market values.
We also note that Management has shown confidence in their business as evidenced by the fact that the Management team currently owns approximately 9.1% of the outstanding stock. In addition, the company has repurchased 4.6% of outstanding shares since 2015.
In summary, as with OXSQ, our thesis here is to purchase an asset trading at a substantial discount to its underlying NAV and get paid a double-digit distribution yield while we wait for the discount to close.
Disclosure: The specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients, and the reader should not assume that investments in the securities identified and discussed were or will be profitable. The top three securities purchased in the quarter are based on the largest absolute dollar purchases made in the quarter.
This article is authored by MOI Global instructor Patrick Brennan, portfolio manager of Brennan Asset Management.
We discussed the investment rationale for Kennedy-Wilson (KW) in our past two quarterly letters. We believed that KW’s asset value was meaningfully higher than its current share price but expressed frustration on the company’s compensation program and its unwillingness to more aggressively repurchase shares. We had the privilege of meeting some of the senior team in Los Angeles earlier this year and the meeting confirmed our belief that:
- The private market value of KW’s assets was far higher than current marks
- There is considerable upside to the company’s pipeline project
- The Dublin real estate market is on fire
- KW’s Vintage Housing program is one of the greatest projects/rackets few have ever heard of
- KW has a formidable fund-raising franchise
- Management was surprised/frustrated at the price of the stock…but still seemed to hold a “guns and butter” approach to capital allocation (we can pay dividends, recycle assets, repurchase shares, save the world – ok, one of those is a bit much)
Obviously, we were delighted with the first 5 but frustrated at the last. On March 20, 2018, KW announced a $250 million buyback program. While we would prefer an even larger buyback, the announcement was clearly a step in the right direction. On April 3, 2018, KW announced that it had already completed roughly 45 percent of the program and retired over 4 percent of outstanding shares in two weeks. We applaud the aggressiveness of the buyback program, as we are convinced they are retiring shares meaningfully below intrinsic value.
Clearly, real estate investors are concerned about higher rates, as the typical REIT now trades at ~15-20% (or greater) discount to their net asset value. While we are not fans of the REIT structure, this gap alone is still interesting, considering that a REIT allows an investor to own a portfolio of real estate assets with daily liquidity. Historically, this benefit has often resulted in small premiums for public REITs versus private market assets. But, KW is not a REIT and therefore can retain capital for growth or share repurchases. Despite this critical advantage, KW trades at a wider discount than office and multi-family REITS. Clearly, these discounts could widen if interest rates quickly move substantially higher. But, even in this inflationary scenario, KW has longer-tenure, fixed rate debt and an asset base with better pricing power than most. While the path may not be straightforward, we suspect investors will eventually view KW more favorably, especially as the Irish pipeline projects convert into net operating income. Substantial value can be created if this appreciation coincides with a substantially lower share count.
The preference for LUK and KW buybacks would seem to contrast the wisdom of the broader business press that has warned that buybacks are a sign of the market top. The preference would also contrast with the strong preference for dividends in a low interest world. There is empirical evidence that companies are generally poor in timing buybacks – purchasing when a stock is expensive, but thumb sucking when it is weak. Some of this is the result of an economic cycle as companies are generally flush with cash during periods of expansion (when multiples tend to be higher) and more pressed during recessionary periods (when multiples are lower). That said, part of the problem is simply that many companies likely spend little time making an estimate of intrinsic value and instead simply repurchase when they have cash and stop when they have less. Without some calculation of value, how can a team judge the relative return from repurchasing stock versus an acquisition? Clearly, a valuation estimate is not a precise figure but a general range and this needs to be compared/ contrasted versus the current share price. Considering broader index valuation levels, share buybacks in the aggregate may not earn fantastic returns, but this does not mean that all buybacks are ill advised. In fact, well timed buybacks can be among the most value accretive capital allocation decisions any management team can execute. LUK and KW appear inexpensive relative to any reasonable estimate of value and therefore are prime candidates for more aggressive buybacks.
Disclaimer: BAM’s investment decision making process involves a number of different factors, not just those discussed in this document. The views expressed in this material are subject to ongoing evaluation and could change at any time. Past performance is not indicative of future results, which may vary. The value of investments and the income derived from investments can go down as well as up. It shall not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities mentioned here. While BAM seeks to design a portfolio which reflects appropriate risk and return features, portfolio characteristics may deviate from those of the benchmark. Although BAM follows the same investment strategy for each advisory client with similar investment objectives and financial condition, differences in client holdings are dictated by variations in clients’ investment guidelines and risk tolerances. BAM may continue to hold a certain security in one client account while selling it for another client account when client guidelines or risk tolerances mandate a sale for a particular client. In some cases, consistent with client objectives and risk, BAM may purchase a security for one client while selling it for another. Consistent with specific client objectives and risk tolerance, clients’ trades may be executed at different times and at different prices. Each of these factors influences the overall performance of the investment strategies followed by the Firm. Nothing herein should be construed as a solicitation or offer, or recommendation to buy or sell any security, or as an offer to provide advisory services in any jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. The material provided herein is for informational purposes only. Before engaging BAM, prospective clients are strongly urged to perform additional due diligence, to ask additional questions of BAM as they deem appropriate, and to discuss any prospective investment with their legal and tax advisers.
NOTA DEL EDITOR: Estas ideas de inversión presentadas por Alejandro Muñoz y José Antonio Larraz son extraídas del informe trimestral marzo 2018 de EQUAM Global Value Fund.
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Durante el trimestre hicimos una visita a una compañía que está iniciando las inversiones para desarrollar una mina de uranio en Salamanca y retomamos el contacto con ese sector después de varios años. El precio del uranio lleva muchos años bajando, porque desde el desastre de Fukushima se cerraron las centrales japonesas y se anunció el cierre de las alemanas mientras entraban en producción nuevas minas de gran tamaño en Canadá y Kazajstán. La consecuencia ha sido la progresiva acumulación de inventarios y la mencionada caída del precio del uranio. Sin embargo, en esta visita nos llamó la atención la decisión de algunos de los principales productores de cerrar sus minas y reducir la producción. Pensamos que esta decisión acabará llevando a una recuperación del precio del uranio. Quizás tarde tiempo, porque los inventarios acumulados por las centrales japonesas equivalen casi a un año de producción mundial y otras empresas eléctricas también tienen inventarios excedentes, pero indudablemente la ecuación del sector ha cambiado. Todo ello a la vez que siguen en proyecto y construcción una gran cantidad de nuevos reactores en todo el mundo, que previsiblemente aumentarán la demanda de uranio en el largo plazo. El mundo no puede depender sólo de las energías renovables y la mayor parte de la nueva producción eléctrica vendrá de la energía nuclear. En este contexto volvimos a analizar Cameco, la principal minera de uranio de Canadá, y llegamos a la conclusión de que si vuelve a producir en sus minas cerradas y el precio del uranio se normaliza, vale el doble de lo que estamos pagando. Hemos invertido un 2% de la cartera.
Lo Mejor de Buffett & Munger en la Asamblea de BRK 2018
May 10, 2018 in Contenido Libre, Miscelánea, MOI Global en EspañolEl pasado sábado 5 de mayo se festejó la 53° Asamblea General de Accionistas de Berkshire Hathaway. El conglomerado cuenta con más de US$450 mil millones de capitalización bursátil, emplea a más de 370 mil personas alrededor del mundo y es dueño de diferentes marcas reconocidas a nivel mundial como: Fruit of the Loom, Duracell, Dairy Queen, Coca-Cola, Kraft Heinz Co.; y recientemente ha vuelto a Apple su mayor posición.