Fitz

I have several rentals and try to make as many items as imaginable "repairs" and expensed in the year occurred vs capitalized over the useful life of the improvement. That is one area you can help to keep your taxable income low with rentals, it's kind of the opposite of how all these high flying pubic companies run their books, so in some sense it may be a nice balance for the accounting world ? Not saying anyone does this in the real world, but some people who have rentals, expense costs associated with their primary residence, like repairs or maintenance against one of the rentals.... never met anyone like this, but have heard they are out there...

I have considered loss harvesting or wash sale's, but personally feel like it would take my investing style in a direction that I wouldnt understand as well. What would happen to me if I bought at $10, sold at $5 and 32 days later it was at 7? I got $5 dollars of losses sheltered, at long term gains tax rate of 20% would be worth $1 dollars and missed out on 2 dollars of gains, and a lower basis? DId i win?. I feel like I wouldn't know how to act as my buy/sell decisions would be influenced not by the long term value of a business but the short term fluctuations of my holdings. I know I would be unsuccessful.

Calloway has really continued to pound out some peak earnings during this home improvement boom. Cash at 20 million now, and they haven't even sold a property! I sold this a few months ago due to the price exceeding fair value for the real estate and that being the thesis behind my initial investment. But if earnings keep plugging along for this business, I will regret it!

@LearningMachine Would be awesome to see you able to get that question in front of management. Maybe it could be something as simple as some of the costs JD.com and other have are shipping and logistics and not counted in the online shopping spend, or some other explanation we haven't thought of yet? Or maybe it will be a difficult one to answer for them...

LM - It's a valid point, the share seems insanely high in relation to its competition in China. You should send this info over to some of a analysts on the last call, would be really awesome if Alibaba clarified this. CFO indicated the take rate is "Currently, our take is somewhere around 4%" seems to be what everyone was guessing in here. One of the QA answers was nice to here; "So as we stated in our earnings guidance, we plan to invest all incremental profit in the coming year into growing our business further and investing for the future." Looks like they will be investing a lot more money, to make customers lives easier and better and also to lower costs and take share. 70% of there additional AAC users came from rural areas. GMV up 20% rom 1t to 1.2t AAC up 11% from 725m to 811 Adv spend up: 1.7% from 1400 to $1425 Cloud up 50% and profitable last 2 quarters. Some really great progress for a company trading at 20x ttm earnings and growing eps nearly 30% over last 5 years.

LM - It's a valid point, the share seems insanely high in relation to its competition in China. You should send this info over to some of a analysts on the last call, would be really awesome if Alibaba clarified this. CFO indicated the take rate is "Currently, our take is somewhere around 4%" seems to be what everyone was guessing in here. One of the QA answers was nice to here; "So as we stated in our earnings guidance, we plan to invest all incremental profit in the coming year into growing our business further and investing for the future." Looks like they will be investing a lot more money, to make customers lives easier and better and also to lower costs and take share. 70% of there additional AAC users came from rural areas. GMV up 20% rom 1t to 1.2t AAC up 11% from 725m to 811 Adv spend up: 1.7% from 1400 to $1425 Cloud up 50% and profitable last 2 quarters. Some really great progress for a company trading at 20x ttm earnings and growing eps nearly 30% over last 5 years.

I would look at the GMV and Cloud growth as the most important variable to watch over time, what happens next quarter with the revenues or profits that reach Alibaba will be less important over the life of this investment than satisfied customers spending and driving more traffic through the Alibaba universe. The lowered take rate or more free services could in fact accelerate the growth and help keep competitors at bay.

LM - You're correct, it will be hard to find because its not in there! I should leave the speaking of precise numbers off the cuff to Buffett. I think I transposed the 2b customers in 2036 to the GMV. I wonder how much the HK listing was also driven by the hostility toward Chinese companies from the west, and the threat of de-listing that has been present the past few years. But it is interesting they wouldn't use cash on hand.

Its in the 2020 annual report. Don't have it up on my phone but page 14 or so “Alibaba by the number.” Growing the customer base will be a smaller part of the doubling of GMV going forward. The average annual spend per user increasing is how they see a lot of it happening. As the customer’s time in the platform matures their spend goes up significantly.

Addressing the GMV, Alibaba is currently around 1 trillion USD in GMV and planning on hitting 2 trillion by 2024. Lowering the take rate would benefit their customers and likely speed that number in anything. Will be interesting to see what the reduction to the take rate is, if commissions were forced to be a fixed lower amount it wouldn't cripple the business. I think they could offer it for free and still have a wonderful business. They could exclusively move into advertising revenue in the e commerce side, when 2 trillion or more is moving through your platform there are a lot of ways you can make small % add up to enormous numbers! They would look like google at the end of that road, and would still have enormous margins. With the additional GMV increase it will likely be powered by Alibaba Cloud.

I would feel much more comfortable holding Costco for 15 years than an MLB baseball team, just my opinion. Surviving is only half the battle, thriving is the other half. I don't know the economics of a MLB franchise, but would be impressed if they produced more earnings growth than Costco over 15 years. The logic of buying things that can't be replaced could easily lead someone to think that commodities, land and hard assets would be the only thing worth owning over the long term and history hasn't supported that thesis yet.

very interesting indeed... would be odd if he paid off the margin account and a few months later loaded it back up. I'm not sure the individual cost basis on his investments in DJCO, by January 2021 charts you had up with 51 mil in total cost basis this would be the largest single investment by far on the cost side. BYD was also selling shares during the run up, so at least the company benefited from the speculative frenzy around it with cheap cost of capital. Also, I must tip my hat to you Wabuffo, your a DJCO and banking sector gold mine, I always enjoy your posts. -Fitz

Well, that's interesting for a few reasons: First, his chinese investing guru Li Lou took a new position in Pinduoduo at the same time he was entering into BABA. I would also have a hard time paying almost 20x price to sales for PDD. But interesting. Second, I remember at a DJCO annual meeting I attended a few years back someone asked him about buying the BYDDY shares and he said he wouldn't touch the ADR. I took this to mean he was not a fan of the chinese ADRs in general, wonder why he chose to purchase his BABA through the sponsored ADR and not the listed shanghai ticker as he did with BYD. Third, makes me feel a little warm n fuzzy that I was starting a position at the same time as God. -Fitz

I think the risks have to be considered with the Chinese Government and the many ways they could impact the future of this business. ICU, The VIE or more commonly called ADR's have been the only way for individual Americans to invest in Chinese companies since the first dollar was invested in the 1980's over these unless you become a registered investor in china, which some people and funds are. This is the route Li Lou has used and many other purchasing the Shanghai stock stock with actual ownership and voting. While the possibility isn't zero that the chinese government could wipe our ADR holders, I would say this would be the nuclear option and would produce a large response by the USA. There is over 1.7 trillion dollars invested in china via ADR's currently. It would be a one time level to pull and would affect a sizable amount of money and investors. https://stockmarketmba.com/whatisanadr.php#:~:text=As%20of%20today%2C%20there%20are,total%20market%20capitalization%20of%20%248%2C315%2C974%2C925%2C360.&text=ADRs%20have%20been%20around%20since,sponsored%20by%20a%20U.S.%20bank. As for the ANT transaction, that was definitely a good example of how you can get hosed in China, Jack spun it out without compensating existing shareholder at all, Yahoo had to litigate for a year to finally arrive at Alibaba receiving 1/3 of the profits of Ant group until it became a public company, and at that point would receive 1/3 ownership pre dilution in exchange for the royalty. The laws were changing in China and ownership of a financial institution was going to need to be spun out of BABA but the equitable move would have been to spin it to all shareholders, was a pretty blatant money grab from Jack as he had diluted himself so much when he grew Alibaba. Even if the direct spin wouldn't have worked for all US investors, the move shouldn't have been done in the dark. Ol' Jack didn't want just 5% of ANT.

I see this similar to Scorpion, Royalty companies will be asset light in comparison to the commodity producer they are associated with. But their stream of income is still tied to the underlying commodity and the quantity produced, and this will impact your returns more than any other variable in the macro world. What Warren talks about IMHO with asset light companies with pricing power being desirable in times of high inflation is that they can pass on the cost of inflation to there customers and not have higher costs associated with maintenance and capex rising, thus inflation will improve margins in these businesses. The example you used in your article with the 10 and 30 million dollar company both having to double their assets to double their earnings and thus be earnings neutral in nominal terms, would rely on the market needing double their respective capacity and this may not be tied to inflation. Warren gives an example at one of the annual meetings of See's Candy; since Berkshire has owned it has seen the purchasing power of the dollar erode by approx 80%. And while production has only gone up 75% since his purchase profits have gone up more than 10 fold. This is due to the pricing power of the business and the small amounts of capital it needed to operate. It was able to allow most of the pricing increases to flow to the bottom line. It didn't have great growth prospects so it just printed money for 20+ years. What would make the economics of the two businesses referenced in your papers different all things being equal but the balance sheet is if both were able to pass along the costs or most of them to customers and increase earnings to 10 million dollars, company A with the small balance sheet would be able to retain a much higher percentage because the inflationary costs of maintenance and capital expenditures would be much lower and they would be more profitable. Where the asset heavy companies revenue will rise the net margins will not as inflation will increase their costs at the same rate they are able to increase prices. My two cents...