I think I was incorrect in my last post to imply that China is the first to politicize capital. That distinction belongs to the US. Regardless, I believe my conclusions are sound.
The truth is the US has pursued political goals through capital since as early as the 1940s. Following the end of World War II, the US used capital to rebuild war-torn Europe as a means to stop the march of Communism across Europe (as well as in Asia).… Read the rest “Follow-Up to “Investing in a World Where Capital is Politicizing””
Morgan Housel from the Collaborative Fund wrote an incredibly thoughtprovoking piece connecting our current global geopolitical and economic environment to the long arc of history back to World War II. By showing how a remote (but impactful) event from generations ago continues to affect the world today in ways that are not obvious (at least to me), Morgan Housel highlights the importance of looking for those “big things” that will influence our world far into the future.… Read the rest “Investing in a World Where Capital is Politicizing”
Over the past month, there has been no shortage of news (or volatility). The paper portfolio performed quite poorly despite having more than half of the portfolio in cash (-3.49% vs +1.87% for S&P500).
September saw significant drawdowns on growth- and momentum-type investments. While the paper portfolio is composed of high quality names, there is currently meaningful correlation between the quality factor and momentum, growth, and low volatility factors.… Read the rest “Paper Portfolio – October Update”
A month ago, I launched a paper portfolio mainly as a tool to encourage more frequent writing as well as to highlight some of the businesses I think worth discussing.
Although the portfolio held 60% cash, it managed to outperform the S&P500 Index – a very welcome surprise. A quick review suggests the large cash balance helped reduce portfolio volatility during a month of elevated market volatility.… Read the rest “Paper Portfolio – September Update”
I have just a couple of links below centered around e-commerce that I found highly interesting and think worth your time.
I think the narrative around Amazon is starting to shift, not just from a regulatory perspective, but from a dominance perspective. Betting against Amazon has been a loser’s bet, but I think betting that Amazon needs to evolve is a clear one.… Read the rest “Amazon’s Shifting Narrative”
Before Tencent Games conquered China and became the world’s largest gaming company a few years ago, Activision Blizzard dominated the industry.
In many ways, Blizzard (specifically) was one of the early leaders in exploring a lot of the themes that make the gaming industry interesting today.
Blizzard was a leader in pioneering and mainstreaming new formats (e.g. MMO/MMORPG through World of Warcraft*), competitive gaming (e.g.… Read the rest “Activision – Sleeping Giant or Past its Prime?”
This Fortnite World Cup Winner Is 16 and $3 Million Richer
Kyle Giersdorf, who goes by “Bugha,” said he planned to buy a new desk with the money. He has played the game for two years.
Source: New York Times
Two weeks ago, a kid with no more than two years of experience at Fortnite, won $3 million and global fame.… Read the rest “The ESports Generation”
Apple Card launched earlier this week to wide interest and seems to be generating more consumer buzz than I would have guessed from the reward structure (which looks average). But I’m glad the company has launched such a product because it gives me an opportunity to write about Apple, a company that holds a special place in my heart not least because I have been an Apple product user for almost 3 decades.… Read the rest “Apple Card’s Strategic Value”
One of the more vexing problems I’ve spent more time thinking about recently, is how most of the attractive businesses with phenomenal business models are already quite large. In fact, many of the businesses I think worth owning are large or mega-caps. However, despite their size, many of these companies are outgrowing smaller peers and with business models that appear much more likely to sustain during tougher times.… Read the rest “Betting on Big”
Starting this month I am publishing a paper portfolio that I expect to update at the start of each month. I am unlikely to update intra-month unless an unusual opportunity presents itself.
The main goal of the paper portfolio is to act as an incentive to write more often (of course at least once a month, but newsworthy items affecting the portfolio will also be soft encouragement).… Read the rest “Paper Portfolio – August Update”
Today, Alibaba and Amazon are likely household names and for good reason. Both of them are giants straddling a number of industries and likely touch close to 2 billion consumers annually. Both of them also tend to be trendsetters that determine the evolution of markets / industries (or at least in thought).
While Alibaba and Amazon get most of the attention, there are other giants in the making that I think get less attention than they rightfully deserve.… Read the rest “Emerging E-commerce Franchises / Sea Limited”
Looks like I’ve neglected to post in quite a while.
The past year has certainly been a blur with both market and geopolitical disruptions domestically and abroad. What started out as my good intention to take the market disruption as an opportunity to do more work on a number of companies I’ve long admired (largely within e-commerce and internet space), quickly lengthened into a years-long journey exploring new areas/industries such as payments, SaaS software, and biotechnology.… Read the rest “Alibaba Ramping Up Efforts in the US?”
Given the recent bout of market volatility, it’s a good time to revisit some businesses and/or explore new ones.
One of the ones on my list is Tencent (700 HK), China’s leading social network and digital entertainment player. Tencent has been a phenomenal performer over the long run. Despite rising close to 9x in the last 5 years, Tencent’s best days still seem to be far, far ahead of it.… Read the rest “Tencent’s Opportunity Beyond China – Games, not WeChat”
When people think about ecommerce today, they likely think about ecommerce along the lines of C2C (consumer-to-consumer), B2C (business-to-consumer), or B2B (business-to-business) – in other words, classification by type of buyers and sellers.
Or perhaps people think about 1P (1st party) vs 3P (3rd party), depending on whether the ecommerce platform itself engages in the direct buying and selling of goods.… Read the rest “The Future of Ecommerce: Utilitarian vs Social”
As detailed in my recent post, Amazon has built up quite a formidable competitive advantage through Fulfillment by Amazon (FBA). Not just on the demand side, which every happy Prime subscriber is already familiar with, but also on the supply side.
In that post I concluded the following:
Fulfillment is clearly beneficial on the demand side, but has a lot of supply side advantages as well.
… Read the rest “The Other Supply Chain Gorilla That May One Day Challenge Amazon”
Amazon has clearly become an absolute juggernaut. There are likely only a handful of companies today that have the resource and scale to compete with Amazon directly. But most of the companies that do have the resources to compete generally don’t operate ecommerce platforms, leaving the field mostly wide open for Amazon to continue to grow unabated.
I have been trying to grapple with the question of why it has been and continues to be so hard to compete against Amazon.… Read the rest “Why Amazon is so Hard to Compete Against”
I wish I had spent more time analyzing Amazon in earnest years ago. But late is better than never. I’ll console myself with the fact that e-commerce penetration in the US is still <10% of all retail sales…and relative to that statistic, even the word “late” seems a bit premature.
Having spent a number of months learning more about Amazon’s history, assets, business model(s), and philosophy, one thing I’ve realized is that Fulfillment by Amazon (FBA) affords the company immense advantages on the supply side that I think are largely glossed over in mainstream media and investor dialogue.… Read the rest “Supply Side Advantages of Fulfillment (by Amazon)”
Two months ago I wrote The Bitcoin “Penny Stock”, detailing what I believed were the conditions that created Bitcoin’s incredible run through September. Although the piece sounded cautious given Bitcoin’s 30-40x 1 year return up until that point, I noted that the prevailing conditions allowed far more than that, perhaps another 50-100x. I highly recommend reviewing that piece since I continue to believe those conditions remain true.… Read the rest “Bitcoin and Cryptocurrencies – The Mother of All Bubbles”
For almost a decade, Bitcoin has periodically captured the attention of the public. Sometimes for its technological potential, sometimes as an object of ridicule, but often times for its boom / bust cycles that have fueled the limitless imaginations of speculators.
Since the start of this year, Bitcoin and alt-coins have once again captured the attention of the public.
Not only has Bitcoin risen dramatically in price, potentially minting hundreds of millionaires and possibly a few discrete billionaires, the blockchain, alt-coins, and ICOs appear to be carrying us at light-speed into a radically democratized and de-centralized future.… Read the rest “The Bitcoin “Penny Stock””
Is possibly going to be Alibaba very soon.
For a long while following it’s IPO in 2014, investors were highly skeptical of Alibaba. Many still are, but many more are starting to recognize Alibaba’s incredible dominance in China. More importantly, as mentioned briefly in my post Tencent vs Alibaba on the Quest to Go Global, the company stands a fairly good chance of going global.… Read the rest “The World’s Most Valuable E-Commerce Company”
Andrew Ng (former Chief Scientist at Baidu, Co-founder of Coursera) is fond of referring to AI as the “new electricity”. Similar to how electrification ended up transforming every single industry during the 20th Century, AI is broadly expected to have similar (if not greater) impact in the coming years.
This post by Oscar Li does a great job encapsulating Andrew Ng’s thoughts as shared during a recent lecture at Stanford.… Read the rest “Predicting the Potential of “New Electricity” by Looking at the Lessons of “Old Electricity””
Finally catching up on some reading: Bloomberg published an excellent profile on Tencent and the co’s strategist, Martin Lau. I highly recommend the article as it not only goes through the history of the company, but reveals the type of thinking and mentality that has helped Tencent become one of the most successful companies in the world.
For the uninitiated, Tencent is one of the “BAT” trinity (Baidu, Alibaba, Tencent) that dominate the Chinese tech space.… Read the rest “Tencent vs Alibaba on the Quest to Go Global”
Summer’s full swing has kept me away from this blog, but luckily it gave me some time to think more deeply about a number of ideas and topics.
One of those is: What tempts us to go beyond our circle of competence?
Buffett constantly warns investors against going outside their circle of competence since doing so would mean treading into industries/areas where one would not have an edge.… Read the rest “Temptations to Go Beyond Our Circle of Competence”
Airports are natural monopolies. Who wouldn’t like owning a natural monopoly?
And unlike other natural monopolies such as local utilities, airports tend to be higher growth assets (air travel is less penetrated than electricity).
At a high level, airports receive revenues from 2 sources: 1) fees on passenger tickets, and 2) commercial revenues generated in airports (e.g. rents from terminal vendors, parking fees, baggage fees, etc).… Read the rest “You Know What’s Better than Owning an Airline?”
What would you pay for a well-regarded, branded business that is expected to grow revenues and net income around 10% CAGR for the next 3-5 years with industry leading margins, high returns on capital, and low capital intensity?
And better yet, given that this business has low capital intensity, the company generates and distributes high free cash flows back to shareholders in the form of dividends and share buybacks, bringing total shareholder returns to 15%+ per year?… Read the rest “Pandora – Fast Fashion or Fad Fashion?”
Do investment managers add any value?
This question is clearly of interest to clients of asset managers, but it is also an increasingly important question for industry professionals as well. It’s hard for industry professionals to do good work if they do not believe in the work they do, and for clients, it is dangerous to be invested alongside managers that are distracted.… Read the rest “Value Creation in the Investment Management Business”
The last post, How Airlines Generate Float, compared the similarities between airline mile programs and insurance companies. I argued that airlines are now essentially generating float through their miles programs. Turns out it’s not that original of an idea (as much as I wish it was!) as there are at least two publicly-traded mile program managers in Brazil.
One of these mile program managers is Smiles (SMLE3 BZ).… Read the rest “A Publicly-Traded Airline “Float” Company”
Recently, I’ve been spending quite a bit of time pondering airlines. Perhaps out of concern that someone could violently drag me down United’s tiny aisles! Good thing I don’t fly United…but I kid, of course.
What has caught my attention is Buffett. He now owns approximately $10 billion of airline stocks. And for anyone that has followed Buffett over the years, this is unusual not least because he’s never minced words with respect to airline industry economics:
“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, then earns little or no money.
… Read the rest “How Airlines Generate “Float””
Lately, there’s been no shortage of positive coverage on Amazon – and for good reasons. The vast majority of retail is struggling with declining same-store-sales, yet, Amazon continues to post a torrid pace of growth despite its size. In FY16, Amazon grew North America segment sales by 25%, and that growth came at the expense of the rest of the retail industry.… Read the rest “Amazon’s Capital Market Dependence”
Judging from market multiples, it’s clear the market is skeptical of Apple’s ability to continue to succeed and has been for many years (currently, 1-yr forward P/E of ~15x despite recent re-rating), while holding limited concern for Google and Facebook (both 1-yr forward at ~26x).
This concern is understandable given the ever-changing tech environment and the long list of tech companies that have been buried over time (e.g.… Read the rest “What Apple, Google, and Facebook’s Business Models Tell Us About Their Ability to Adapt to the Coming AI-Future”