Monday, December 19, 2016

Merry Xmas

Another year is just about gone.

As usual, there were many headline events over the year. The cumulative effect of these events on the trajectory of the good businesses that we hold will be virtually nil in the coming 5 to 10 years. On a portfolio level, I have had my share of good decisions and bad decisions, and fortunately, at this stage, the impact of my good decisions appear to outweigh the impact of the bad ones. There is always room for improvement, and I will be taking some time off during the Xmas and New Year to examine ways to minimise my unforced errors.

With a few trading days to go, we received an early Xmas gift from our indomitable UOS with an encouraging profit guidance for the full year. It is worthwhile noting that this guidance came in the face of a 10% slide in the MYR/AUD currency cross-rates. May we have many many more bountiful years with the Kongs.

The folks at DTL continue to kick goals. At the current trajectory rate of the business, I doubt many of the employees at DTL will get a decent break over Xmas. Many thanks from a happy and grateful shareholder.

Once again, another big thank you to Alf Mouffaridge of Servcorp, not the least for presenting another entertaining Annual Report. My message to you this year is that there is no shame in imitation. Many great business successes are based on imitation of best methods invented by others.

Finally, to Indy Singh of Fiducian. You have built a might fine business. Stick to what you believe, and do exactly what you say. The rest will follow.

To all readers, thank you for your patronage. I wish you a Merry Xmas and a Happy New Year!

Yours One-Legged

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:


2014
2015
2016HY
2016F
Revenue
143m
207m
137m
300m
COGS
30%
24%
25%

R & D
50%
48%
42%

General
20%
15%
14%

Marketing
75%
72%
62%

Total
175%
159%
143%



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