giofranchi

I also think this explanation makes a lot of sense. Thank you! Gio

The term “platform” imo is a bit misleading: Google, Apple, Facebook, Amazon are all platform companies. A platform imo is any business that can scale very quickly, reaching a global footprint, and that can add new products or services to improve the experience of its customers. Cheers, Gio

You may be right. But in the perspective of a whole portfolio, not just a single company, I am grateful I can invest in a company that will do moderately fine if nothing bad happens, and that will perform far better than most other investments if something bad happens instead. Especially because a global deleveraging has historically always been a very treacherous environment for the financial markets. To hold a large position in such a company right now is imo a 1-foot hurdle. Cheers, Gio

They have probably never been more conservatively financed than at the end of 2015. But they still seem to be very cautious about using their cash reserves. I am not sure why… If they still expect “stock prices to go down by a lot and to stay down for a long time”… Anyway, that’s the reason I hold a large position in Fairfax: until this global deleveraging is finally over, an investment that might benefit from deflation is welcomed imo. Cheers, Gio

Sorry if I have said that… I certainly expressed myself poorly. Instead, here is what I meant: I would not even talk about a competitive advantage. I would talk about a “virtuous circle”. Let me explain: basically I invest in companies still led by their founders (Berkshire, Google, the Liberty family of businesses, Fairfax), and/or in companies which have a very long track record of very good capital allocation capabilities (Johnson&Johnson, Abbott Laboratories). My primary concern then about investing in Apple is the quality of management (Jobs has left prematurely, and present management has no real track record). This is the reason why I think it is important that present management finds itself in a virtuous circle, in which the great majority of its industry earnings should be used to further increase the gap between AAPL and its competitors in terms of the value proposition they have to offer to smartphone users. And this widening gap should help them retain the great majority of earnings while also gaining market shares in sales. In other words, management don’t have to be geniuses of Job’s caliber in order for Apple to continue being a success. And that is very important to me as a minority investor. This is the dynamic I personally experience every day on a very small scale… Of course another objection could be that what is true on a very small scale might not be as relevant on a global scale. I agree. Cheers, Gio

Why do you think Apple Music is awful? I pay 10 Euros every month and can listen to all the music I want... What's not to like about it? Cheers, Gio

Good point, the tech brands can erode faster than the classic consumer types. +1 completely different Except that Apple is no more only a "tech brand". Cheers, Gio

Of course, disruption happens when and where it can happen. Maybe MCO’s business is very well protected and doesn’t allow for disruption to happen. Technology is usually another matter. Maybe not now, but you don’t think Steve Jobs has been a disruptor? Again, this might be true if you believe you understand very well what goes on inside those Asian state controlled electronics manufacturers… I don’t think I know enough about those dynamics to judge. Instead, I know the position of strength I enjoy when I earn all the profits and my competitors none… Have you ever personally experienced it does no good, and only attracts more competition, or have you just read it in some books? Cheers, Gio

Global Smartwatch Shipments Overtake Swiss Watch Shipments in Q4 2015 https://www.strategyanalytics.com/strategy-analytics/news/strategy-analytics-press-releases/strategy-analytics-press-release/2016/02/18/global-smartwatch-shipments-overtake-swiss-watch-shipments-in-q4-2015#.VscnOPD2b4h Cheers, Gio

I find the article in attachment very useful to understand Apple's competitive advantage: Cheers, Gio tesla-is-copying-apples-business-model.pdf

I don’t think so: 1) Disruption: it happens when a very gifted individual (e.g. Steve Jobs) finds a way to bring to the masses a great and new product (e.g. touch screens). No advantage nor virtuous circle can protect you from that. Period. 2) Disruption is what put Apple in the position it is today, in which it enjoys 94% of its industry earnings. Scale has mattered much less: in fact Samsung sells 21.5% of worldwide smartphone sales, while Apple is only at 14%. 3) Once it got to the position it is right now, the fact that it leaves the crumbs to its competitors in terms of earnings at least puts Apple in a virtuous circle: Samsung might be spending more than Apple in Capex and R&D, but without earnings it is pressured to show results. Higher Capex, higher R&D, and much lower earnings? How long will it keep convincing its shareholders to leave their capital in Samsung? And what about the bond markets? Would you lend to a corporation which spends a lot and shows very little earnings as a result? In other words, Apple’s ample resources give it the freedom to invest for the long term benefit of its shareholders. Freedom that its competitors hardly enjoy. If management is good enough to wisely use this advantage, they should be able to increase over time the value proposition of Apple’s products and services compared to those of its competitors (which is basically the definition itself of good long term investing). Of course, if instead management falls short of this task, the virtuous circle I have tried to describe will be broken. Cheers, Gio

2015 Results: http://www.fairfaxindia.ca/news/press-releases/press-release-details/2016/Fairfax-India-Holdings-Corporation-Financial-Results-for-the-Year-Ended-December-31-2015/default.aspx Fairfax India is selling exactly at BV: not bad for a company very well positioned to capitalize on India's strong demographic trend. Cheers, Gio

True. I am not saying that great resources are enough. I am saying that great resources in the hands of a capable management are a good thing to have. Especially when no competitor of yours enjoys them! Cheers, Gio

Of course I can only speak for what my own experience is: in its very small niche my business earns much more than any other competitor, and this has allowed me to keep reinvesting and widening the gap between our products and services and the competition’s. Without having to ask for other people’s capital and therefore without being at their mercy. Instead, I don’t know much about “state sponsored electronic firm with near unlimited access to state subsidized capital”… But you seem to have great conviction in what you say about those Chinese/Korean electronics firms… I guess they will turn out to be formidable competitors. When they do, they will surely start to make a profit. And I will change my mind. Cheers, Gio

● The number of mobile-connected devices per capita will reach 1.5 by 2020. ● The total number of smartphones (including phablets) will be nearly 50 percent of global devices and connections by 2020. ● Because of increased usage on smartphones, smartphones will cross four-fifths of mobile data traffic by 2020. http://www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-index-vni/mobile-white-paper-c11-520862.html Cheers, Gio

Google Acquihires Work Chat Startup Pie To Build Engineering Team In Southeast Asia http://techcrunch.com/2016/02/18/google-eats-pie/ Cheers, Gio

+1 Cheers, Gio

Yes, interesting indeed! Thank you for posting, Gio

I agree: Apple is failing to convince investors right now. Still, one thing remains true: it earns 94% of the earnings of the smartphone industry. And mobile data traffic is expected to increase eight-fold over the next five years. Therefore, the smartphone industry as a whole is still growing very rapidly. My idea is that, when you control practically all the earnings of a fast growing industry, you are in the position to make your products more and more valuable, steadily increasing the gap between you and your competitors. And you don't have to be a genius to do so (a Jobs might be needed to get you in the position where you control 94% of the earnings of a fast growing industry, while a Cook might be enough to use such an advantage wisely). We will see if this is true, or if competition will start eroding AAPL’s profitability. The jury is still out! Cheers, Gio

Carl Icahn cuts stake in Apple: Filing http://www.cnbc.com/2016/02/16/carl-icahn-cut-stake-in-apple-filing.html Both Icahn and Einhorn are long-term investors in AAPL, therefore it would be interesting to know why they have chosen to sell some. Cheers, Gio

Thank you. I also think it should turn out to be a good deal. Cheers, Gio

Ok. I understand. But I wasn’t discussing investment merits either… Instead, I am not sure I would say humanity at the stage of development it has reached today only benefits from what’s ‘necessary’… Imo the more technological progress goes on, the more humanity will benefit from ‘great’ products. In the past the onset of negative rates has led to wars, hasn’t it? War has historically succeeded in accelerating the deleveraging process through defaults, and in causing inflation (and interest rates) to rise again. Right? It might be just wishful thinking… But let’s hope this time the deleveraging process might proceed from the building of wealth, instead of the defaulting of debts. And to build wealth you ‘need’ great products! Cheers, Gio

What do you mean? Both Apple and Google are examples of companies which create wonderful products. Banks instead are very useful, I agree. But I would not define their products nor services wonderful. Therefore, I don’t see how a comparison between something that’s ‘necessary’ and something that’s ‘wonderful’ might make much sense… Cheers, Gio

Cheers, Gio

I think what people want, and almost never get, in investing is clarity: will I make money, or will I lose money. And if I’ll make money, how? I think in a difficult environment the way Fairfax makes money is clear to most people. Therefore, if some forced selling happens to Fairfax as well, I think it will probably be short lived. Many other company that I know of and follow will probably go on being profitable even in a very difficult environment. For instance, for Berkshire to stop being profitable a really catastrophic event should occur. But people don’t know how much Berkshire will earn in a difficult environment, and they are probably guessing Berkshire will earn much less in a difficult environment than what it has earned until now. Furthermore, while everyone knows a difficult environment doesn’t last forever, no one really is sure how long it could last: some months, one year… two? Of course it makes a lot of difference! With Fairfax, instead, it is different because people think that it will make more money in a difficult environment than it did until now. Therefore, the psychology is reversed imo. At least for me it surely works that way. Cheers, Gio