Wednesday, March 29, 2017

Giverny Capital Annual Letter 2016

Here is the link to Giverny Capital Annual Letter 2016. 

Excellent writing and clarity as usual.

I will post comments later, if any.

Sunday, March 19, 2017

Li Lu 2015: The Prospects of Value Investing in China

This is a translated version of a talk given by Li Lu in 2015 at Peking University.

Readers might know that Li Lu is one of the few managers that Charlie Munger has invested with.

The transcript is a rare gem as Li Lu does not publish a lot.

In the great tradition of multi-disciplinary learning, it is apparent that Li Lu has drawn upon and synthesised a lot of major ideas from other areas. I am sure I will not be able to identify everything, but I can see ideas from Yuval Harari and Jared Diamond clearly being applied.

Enjoy and Prosper
Yours One-Legged

p/s It appears that the link to the document no longer works. If anyone wants a copy of the talk, please email me.


Sunday, February 26, 2017

UOS another year

The juggernaut keeps on rolling, despite some currency headwinds:


2H16
1H16
2H15
1H15
2H14
1H14
2H13
Cash
$398m
$462m
$487m
$469m
$400m
$353m
$435m
Receivables
$218m
$230m
$196m
$179m
$169m
$171m
$158m
Inventories 
$385m
$416m
$395m
$388m
$358m
$348m
$310m
Land held for property development
$143m
$134m
$123m
$84m
$84m
$26m
$22m
Property plant and equipment
$94m
$100m
$57m
$61m
$62m
$57
$28.2
Investment properties
$823m
$718m
$668m
$683m
$679m
$621m
$649m
Total of Asset Items above
$2061m
$2060m
$1926m
$1862m
$1752m
$1576m
$1602m
Total liabilities
$460m
$488m
$486m
$435m
$367m
$333m
$344m

Thursday, February 16, 2017

Transcript of Charlie Munger's DJCO meeting 2017

Here is this year's DJCO transcript.

My learning from giants continue.

The author has already highlighted the important points, so I will not repeat them here.

It is currently reporting season, and things are looking pretty pricey. DLX 30x, RWC 30x, COH 35x, IVC 30x. I look on forlornly and cannot help thinking that the number 30 is this year's financial equivalent to fashion's black. It is a perilous environment, as things trading at 15x starts to look interesting, just when cash is starting to pile up. This is an example of how our brains are wired to think and judge matters on relative terms, rather than on absolute terms. Pretty soon envy will be driving market prices, as everyone strives to do better than the Jones'.

The make-up of the market comprises of over 90% of spots where all capital goes to die, and only a handful of spots where capital is protected and thrives. If you avoid the bad spots, you cannot help but do well.

Enjoy and Prosper,
Yours One-Legged

Sunday, February 5, 2017

Book Review: A Man for All Markets

A Man for All Markets: Beating the Odds, from Las Vegas to Wall Street by [Thorp, Edward O]

https://www.amazon.com/Man-All-Markets-Beating-Street-ebook/dp/B01N4LB3LK/ref=tmm_kin_swatch_0?_encoding=UTF8&qid=&sr=

A Happy New Year to all.

Readers of this blog will hardly be surprised at my excitement and enthusiasm for this book. I finished the first reading of this book in 2 sittings over 2 days. I am now on my second reread.

Initial takeaway points, relevant to both investing and life in general:

1. What matters most in life is what you do, how you do it, and who you share it with. Note: cross refer with Guy Spier's book. Essential for all seeking a better life.

2. Understanding and dealing correctly with the trade-off between risk and return is a fundamental, but poorly understood, challenge faced by all gamblers and investors. Note: I have bleated about this ad nauseam, but I will stop now, as it is to my advantage that participants continue to misunderstand this. To recap: high risks do not equal high returns.

3. The surest way to get rich is to play only those gambling games or make those investments where I have an edge.

4. The Ten-Count System had shown moderately heavy losses mixed with "lucky" streaks of the most dazzling brilliance. I learned later that this was a characteristic of a random series of favorable bets. Note: read this again carefully- it is a goldmine.

5. If the market does a good job of using today's public information to set current prices, then the only investors who have an edge are those with material private information. Note: I am not sure I agree with this. There is often great variability between system participants irregardless of system average values.

6. Because you can't get out in time when trouble is coming, the excess returns you expect from illiquid investments may be offset by the economic impact of unforeseen future events. Note: very relevant to those focused on small caps.

7. Economists have found that one factor has explained a nation's future economic growth and prosperity more than any other: its output of scientists and engineers. To starve education is to eat our seed corn. No tax today, no technology tomorrow. Note: important message for our political leaders, and also forming a seed for my own personal end-game in life.

Reporting season is coming up- busy time ahead.

Enjoy and Prosper,
Yours One-Legged


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.