Wednesday, November 2, 2016

Xero: Update

Last year in August 2015, I published a review on Xero.

Today, Xero published its half yearly, so I thought it will be interesting to update our figures. The following table summarises the salient metrics:


R & D




The figures are certainly headed in the right direction. Pleasingly cash burn has reduced to $13.4m in the last half, with $137m left in the bank, implying a steady runrate of 5 years. 

EDIT: 7 November 2016, cash burn is actually $45.8m. $13.4m is cash burn from operations, with the balance classified as investing cash outflow. However, the company's presentation materials emphasised $13.4m rather than real cash burn of $45.8m. Instead of a steady runrate of 5 years stated above based on $13.4m, the runrate is actually only 1.5 years.  This is the problem with promotional companies, and I should have been much more careful in scrutinising the figures.

The current market cap is roughly NZ$2.3 billion. Share price is up roughly 10% since my August review, and given growth rates of 50% in actual financial performance, has resulted in a narrowing of the gap between valuation and earnings expectation. However, in my view, the share price is still incorporating very optimistic assumptions of growth and eventual margins. In fairness, the probability of these optimistic assumptions eventuating have increased since last year.

Monday, September 26, 2016

Giverny Capital Annual Letter 2015

A bit late this year, here is another letter from the good folks at Giverny. I post these letters because I operate on a near identical investment philosophy with the notable exceptions being:

1. my writing skills are far inferior;
2. my investment record is much shorter.

Giverny Capital Annual Letter 2015.

Notable quote from the letter:

"Significant and educational conclusions can be drawn from a 20-year period. Since 1996, our companies have increased their intrinsic value by 1102%, or close to a twelvefold increase. Meanwhile, the value of their stocks has increased 1141% (net of estimated currency effects). On an annualized basis, our 9 companies increased their intrinsic value by 13.2% and our stock portfolio returned 13.4% per year. The similarity between those two numbers is not a coincidence. (my emphasis)"

Yours One Legged

Current Reading

Intelligent Fanatics Project: How Great Leaders Build Sustainable Businesses by [Iddings, Sean, Cassel, Ian]

I have just started reading this book.

This book profiles 8 CEOs and then attempts to draw some form of generalisations as to their common features. The objective is to be able to spot these features in CEOs that could possibly achieve outstanding results in the future.

At this stage, whilst being an interesting read, I am also wary of ideas that attempt to extrapolate general ideas from a small preselected sample size. In a nutshell, my argument is that we do not know of countless other CEOs, possibly with similar traits, who has actually failed and lost shareholders' money.

It is also interesting to note that the whole thing could be simplified by viewing CEOs filtering via Jack Welch's criteria of integrity, passion and 4Es, set out in his book, Winning.

I will continue reading, and post any further insights.

Readers may be interested in my Library listing here.

Yours One Legged

Sunday, September 25, 2016

Dogs versus Darlings 2.5 years later

Keeping track of my amusing exercise started in March 2014.

Since then, one of the Dogs has been taken over for a gain of 61.54%. Not to be outdone, one of the Darlings was also taken over for a gain of 22.27%.

Overall, the Dogs portfolio is down -9.5%. The Darlings portfolio, unfortunately, with -15%, has done worse.

But wait, there is more. After accounting for dividends fully grossed up, the Dogs portfolio is flat whereas the Darlings are still down -4%.

The one obvious lesson from this exercise to date is that overpaying for shares could yield results comparable or worse than buying shares in a lousy industry facing severe headwinds.

Valuation matters. Nothing grows to the sky forever.

Yours One Legged

Thursday, August 18, 2016

My learning continues with this excellent transcript of Q & A with Robert Bruce.

Summary of wisdom tidbits:

"The idea is to invest when the market price is below the cost of production."

"We value investors want to get the future cheap, preferably free."

Enjoy and Prosper,
Yours One-Legged

Tuesday, April 26, 2016

Transcript of Jim Chanos interview

Here is a transcript of an interview with Jim Chanos.

I learned heck of a lot from reading this. I hope you do too.

Enjoy and Prosper,
Yours One-Legged

Monday, April 11, 2016

Transcript of Charlie Munger's 2016 Daily Journal Annual Meeting

Transcript of Charlie Munger's comments at the 2016 Daily Journal Annual Meeting.

Notable extracts:

1. They had a monopoly where every year they kept raising prices and every year people had to pay for it. A wonderful business.

2. There's an endless market for software in these public agencies, and it is a market that is sure to keep flourishing and needing more and better software.

3. It is agony to do business with a whole bunch of public bodies, so a lot of companies in software don't come near it, because they prefer the easy money.

4. Good investment opportunities are scarce, so one must act decisively when presented with one.

5. A fair amount of patience is required, followed by pretty aggressive conduct.

6. Electric forklifts= example of a very big idea.

7. Opportunity cost matters= if you have a rich uncle who will sell you his business for 10% of what it is worth, you don't want to think about some other investment.

8. We don't want any lousy businesses anymore.

9. We spend a lot of time thinking.

10. A constant search for wisdom and a constant search for the right temperamental reaction to opportunities, these will never be obsolete.

11. The nature of ordinary results is that they are ordinary.

12. The first time we bought Wells Fargo, we bought heavily, because we had an informational advantage, based on general thinking and collecting data. (Wells Fargo's lending officers are more conservative and operate better due to their backgrounds in the garment district.)

13. One should not invest in banking unless one has deep insight, especially on management shrewdness.

14. Synthesis is reality, but the reward systems of the world pays for extreme specialisation.

15. Being rationales mean avoiding awful things like anger, resentment, jealousy, envy, self-pity.

16. Good behaviour makes your life easier- you dont have to remember all your lies.

17. The big busts hurt us more than the big booms help us.

18. I don't think the auto industry will be a terribly easy place to invest in.

19. A lot of people think that if an axe murder happens in a free market, it has to be all right because free markets are always right.

20. People will cheerfully tolerate differences of outcome if they seemed deserved. Differences in outcome that seem to be undeserved tend to disrupt democracy. Inequality is a natural outcome of a successful civilisation that is improving for everybody.

21. Munger's Rule= large amount of money makes people behave badly.

22. I don’t think fundamental value investing will ever be irrelevant because of course if you’re going to succeed in investment you have to buy things for less than they’re worth instead of more than they’re worth. You have to be smarter than the market. That will never go out of style. That is like arithmetic. It’s going to always be with us.

23. Generally, I avoid circumstances which automatically causes reasonable fear.

Enjoy and Prosper,
Yours One-Legged