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Alibaba Ramping Up Efforts in the US?

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?”

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Tencent’s Opportunity Beyond China – Games, not WeChat

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”

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The Future of Ecommerce: Utilitarian vs Social

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”

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The Other Supply Chain Gorilla That May One Day Challenge Amazon

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”
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Why Amazon is so Hard to Compete Against

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”

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Supply Side Advantages of Fulfillment (by Amazon)

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)”

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Bitcoin and Cryptocurrencies – The Mother of All Bubbles

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”

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The Bitcoin “Penny Stock”

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.

market-price-(usd)

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””

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The World’s Most Valuable E-Commerce Company

Is possibly going to be Alibaba very soon.

Amazon vs BABA

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”

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Predicting the Potential of “New Electricity” by Looking at the Lessons of “Old Electricity”

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””

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Tencent vs Alibaba on the Quest to Go Global

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”

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Temptations to Go Beyond Our Circle of Competence

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”

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You Know What’s Better than Owning an Airline?

An airport. 

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?”

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Pandora – Fast Fashion or Fad Fashion?

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?”

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Value Creation in the Investment Management Business

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”

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A Publicly-Traded Airline “Float” Company

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.

Smiles

One of these mile program managers is Smiles (SMLE3 BZ).… Read the rest “A Publicly-Traded Airline “Float” Company”

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How Airlines Generate “Float”

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””
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Amazon’s Capital Market Dependence

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”

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What Apple, Google, and Facebook’s Business Models Tell Us About Their Ability to Adapt to the Coming AI-Future

 

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”

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Simple Investment Theses

“A further related lesson: Easy does it. After 25 years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them. To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers.”

… Read the rest “Simple Investment Theses”
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The Importance of Focusing on Business Models

“Investment is most intelligent when it is most businesslike.” – Benjamin Graham

“I am a better investor because I am a businessman and a better businessman because I am an investor.” – Warren Buffett

Most investors define themselves along a couple of axes: Technical vs fundamental, value vs growth, long vs (and/or) short, contrarian vs momentum, large cap vs small cap, etc. … Read the rest “The Importance of Focusing on Business Models”

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Berkshire’s Performance Edge that No One Talks About

Over the last half century, Buffett has achieved a marvelous long-term performance record. Many have studied and written about his investments to try to learn how to replicate what he did.

I’ve read a lot of those, and you probably have, too. But I’ve always felt that something was missing. 

Consensus has generally coalesced around a couple of observations on how he’s done it:

  • Buffett focuses on high-quality businesses (but will settle with a partial interest via public equity if he can’t own the whole thing)…
  • Purchased at fair (or cheap) valuations…
  • And never letting cash burn a hole in his pocket as he waits patiently for these opportunities

He also appears to have a preference, either by choice or happenstance, for stocks that generally exhibit lower beta.… Read the rest “Berkshire’s Performance Edge that No One Talks About”