Krapdivad

30 page analysis of the PSTH deal from Enrique Abeyta from Empire Financial Research with Whitney Tilson. He assumes some generous multiples in his valuation but does a good job of explaining the business, and what is happening PSTH with the UMG deal. https://assets.empirefinancialresearch.com/uploads/2021/06/The-Type-of-Investor-That-Can-Change-Your-Investing-Life-1.pdf

Interesting that Stanley Druckenmiller also commented yesterday that crypto might provide a replacement to the dollar as the world's reserve currency, but suggesting an alternative that had yet to be created. Interesting because he owns bitcoin, but doesn't have a strong faith that it'll be THE crypto. He said in the CNBC interview that the ultimate solution could be “some kind of ledger system invented by some kids from MIT or Stanford” though he conceded that “I don’t know what it will be.”

https://podcasts.apple.com/us/podcast/business-breakdowns/id1559120677?i=1000520232597 An excellent podcast where they breakdown how Visa works, and its moat. I remember Chuck Akre saying that he’s stopped talking about Visa’s competitive advantages because he thought they weren’t well recognized by the market. Most people don’t know how Visa works because Visa primarily works with banks. When a Visa transaction is made, the merchants bank (acquiring bank) receives money from a customers bank (the issuing bank) through Visa’s network. Visa is incentivized to offer issuing banks (who give out credit cards) larger interchange fees (a larger percentage of each transaction). With larger interchange fees, banks are then able to then offer larger rewards to their customers. This incentivizes the credit card user to use that credit card more, and draws in new customers. This reminded me of Nomad Partnership’s recognition of the scale economies shared model. By passing the savings onto the customer, it incentivized the customer to keep coming back and also drew in new customers. They would use this larger base to continue to lower merchant costs to produce savings and the cycle would continue. There are many other great insights into Visa’s long term success in this podcast.

We often hear of Berkshire’s cash position terms of total dollars ($145 B), which highlights its sheer size. However, I was more interested in how the cash position looked as a percentage of Berkshire. This info would guide me in my own portfolio allocation to “guard against external calamities.” Buffett received a question about this during this weekend’s meeting. He said he views Berkshire’s cash position as a percentage of its assets. Looking at the latest balance sheet: Total Cash: $145B Total Assets: $884B Current Percentage of Cash = 16% In Buffett’s response, he said he’d like to put roughly $70 or $80 billion of cash to work, or about half his cash position. So I’m piecing together that he currently has 16% of his portfolio in cash, and he’d like to keep around 8% as a cash cushion. Am I getting this right? What do you think about keeping a cash cushion in your own portfolios? What percentage allows you to act with equanimity during a downturn?

Thanks for posting your summary. Goes well with what Buffett said yesterday about the CEO being the biggest risk factor for a company.

How lol

How do you "like" someone's post. Someone had "liked" my post and I'm not sure how they did it.

There was a pre-Berkshire meeting by Yahoo Finance today with Laurence Cunningham, Robert Hagstrom, Carol Loomis, and Tom Gayner. Took a few notes if anyone was interested: Larry Cunningham: The annual meeting at Berkshire was created to attract a certain kind of shareholder base that was focused on owning a business for the long term. What makes Berkshire so distinctive and why don’t more companies copy it? Larry Cunningham Buffett sees himself being in a partnership with his shareholders. He makes the decisions for the company as a whole Berkshire is highly decentralized with good managers in place with their own strategies, in a trust based environment. Other companies have an overwhelming pressure to conform to short term results and quarterly guidance Some companies that have been able to adopt a long term/ Berkshire style: Markel Fairfax Constellation Post Johnson and Johnson Danaher Alphabet Robert Hagstrom Warren’s best success was building a culture of rational allocation of capital This created the most successful conglomerate in history that will last for decades Tom Gayner There’s a degree of personal responsibility that Buffett and Munger have assumed with a culture of stewardship and trust Tom Gayner quotes someone named Chad: “At any point in the investment arena, there are times where you look smarter or dummer than you really are.” Most people can’t endure the period when they look dummer I.e. Buffett whenever Berkshire is lagging the market Buffett is always accused of not doing enough during these periods and he’ll probably be asked “have you ever thought of … crypto, SPACs, etc” Carol Loomis: Has been editing Buffett’s letters for 50 years now. She gets a draft in October and they mail each other comments, because if they did it over the phone they’d get upset at one another. Since she’s the first person to ask a question, she feels some pressure to ask the question everyone wants to know. If not, the two other anchors next to her will. How will Berkshire evolve? Larry Cunningham: Buffett put in place great leaders for the future of Berkshire Insurance (Ajit Jain) Businesses (Greg Abel) 2 portfolio managers (Ted and Todd) Loyal shareholder base Robert Hagstrom mentions his new book Warren Buffett: Inside the Ultimate Money Mind Took him a very long time to realize that Buffett’s temperament was a large part of his success Tom Gayner on Berkshire’s evolution: Berkshire has changed in size, scale, skill, and as the world changed In the early days it was essentially Buffett’s investment partnership, and his investment skills in stocks that drove Berkshire Once he bought National Indemnity then it also became an insurance company With the purchase of the utility assets it morphed into a conglomerate and into an enterprise that was more multifaceted and larger than it used to be Buffett tells you what you own over time in a simple way On Berkshire’s future after Buffett, thinks about other businesses that have survived past their genius founder I.e. Dupont Why did Buffett take so long to buy stock? Robert Hagstrom: Believes Berkshire wasn’t at a huge discount to intrinsic value, and that Buffett allocated a modest amount to share repurchases With all the cash do you see more share buybacks or business purchases being made in the future? Tom Gayner: The beauty is that they’ve had both options open over the years. Buffett and Munger have the skill of business purchases and ability to repurchase shares.

I'm getting more comfortable investing in China as more of the investing "gurus" are becoming more outspoken about the opportunities in China. Charlie Munger, Li Lu, Ray Dalio, and Howard Marks all have spoken about the opportunities for investors as China becomes the world's largest economy. They all point to favorably changing regulations over time that will bring more confidence to global investors. This provides an opportunity for mature US investors to take advantage of the inefficiencies still present in the younger Chinese markets. China was always worried about money flowing out of the country, and it seems like they've realized that bringing in foreign investors will be beneficial for the country's long term prosperity. As China is going from an import/export economy over to a consumer driven economy, entrepreneurial companies are playing a more important role. The government is recoginizing this and reforming the IPO model from an approval based to a registration based model according to Li Lu. I got all of these insights from Li Lu's talk the other day, and more recently from the Howard Marks interview. Li Lu: https://youtu.be/FiHrWy2jGbA Howard Marks:https://fb.watch/4U6RvgdJzJ/

Thank you

Put together a little list with some summaries I found online https://docs.google.com/spreadsheets/d/1eKDLCbkaV7-btd1Pklup14QxERO1ZDTOLIjimCJnKI8/edit?usp=sharing

Li Lu's recent fireside chat with Bruce Greenwald had so much great stuff packed into it. https://www.youtube.com/watch?app=desktop&v=FiHrWy2jGbA&feature=youtu.be One thing that Li Lu recommended was that we devote as much time as possible reading up on the history of businesses, and the great businessmen in the past. The more you study companies, the better your judgement becomes about companies. Books that came to my mind were - Titan about John D Rockefeller - Good to Great - Shoe Dog (Nike) - My Father's Business (Dollar General) - In Sam We Trust (Walmart) - The Ride of a Lifetime (Disney) A bunch of these have been on my reading list. Do you guys have any recommendations on any books that enrich our understanding of businesses from the past?

Barrons got a comment from Munger about his BABA purchase. It looks like he sees the purchase as a store of value. This hints that he sees lower risk of owning an ADR/VIE than buying treasury bills. Albeit he says allocated a "tiny amount Alibaba common stock" at $37 million. How do you guys explain this $37 million being a “tiny amount” of the $270M DJCO has in cash and marketable securities? https://www.barrons.com/articles/berkshire-hathaway-charlie-munger-prefers-alibaba-stock-to-treasury-bills-51617813729 In response to a request for comment on the investment, Munger, who is also the vice chairman of Berkshire Hathaway (BRKb), provided a statement to Barron’s: “Daily Journal Corporation has and needs securities held as cash equivalents. These cash equivalents would normally be U.S. Treasury Bills. But, with returns on Treasury Bills now so low, the Company instead, invests in common stock. And, unless its long term prospects seem good, a common stock is not considered to be a good cash equivalent. “A minor part of Daily Journal Corporation’s cash equivalents now consists of a tiny amount of Alibaba common stock.” That “tiny amount” was valued at $37.5 million as of March 31

In last night’s talk Li Lu essentially echoed Charlie Munger’s advice of “fishing where the fish are.” Munger’s recent purchase of BABA aligns with what Li Lu was saying about the opportunities in China for value investors. Li Lu sees China as a great place for global value investors. He sees China playing an increasing role of importance in the global economy as it’s earlier in the economic lifecycle compared to the US. Because of this, patient US investors can take advantage of this younger market made up of retail traders with high turnover. China is shifting from an import/export driven economy to consumer spending driven economy with a rising middle class. China outpaced the US in retail sales for the first time last year. The Chinese government is becoming more aligned with the markets and reforming their regulations. Li Lu sees more opportunities in a dynamically growing economy like China, where there are a lot of inefficiencies in the market. He sees China undergoing a transition period where upcoming government reform will make the markets more efficient. China stumbled onto the secret of producing sustained compounding growth that America has enjoyed. Li Lu credits this to the acceptance of free markets and advancements in science and technology. They just need the political stability to release this power. There has been a lot of fear among US investors in investing in Chinese companies with the VIE ownership structure. Owning these wouldn’t make us shareholders, but owners of an offshore shell company that has contracts with the Chinese company. There is fear that our ownership couldn’t be enforced, or be wiped out by the Chinese government. Munger’s recent purchase of BABA and Li Lu’s talk about China opening up to global investors takes the opposite stance of this fear. Does Munger’s purchase of BABA mostly ease these fears of investing in Chinese companies for you?

What do people think of taking on debt, such as a home equity loan to put into equities or cryptocurrencies now? If we think that due to money printing, inflation and interest rates will rise, it may be advantageous to take on cheap debt, and to put it in something that will resist the depreciation of cash.

3/19/21 interview with Bloomberg Getting some clarity from Ray Dalio on what’s going on with the stimulus checks and interest rates. The central government has the ability to collect taxes, sell bonds, and spend money on goods and services (like unemployment and stimulus) The central bank (aka the fed) has the ability to print new money and buy financial assets (like bonds and stocks) When the central bank uses printed money to buy government bonds for the central government to spend, it’s called monetization. According to Dalio, this activity of creating a lot more debt and then monetizing it is indicative of a late stage in the long term debt cycle. During the pandemic, people were desperate for money and spending decreased. In order to make up for the decrease in the economy, the central government provided stimulus by selling a lot of bonds. Currently you can’t get a great return if you buy these bonds (if you factor inflation your returns would be negative). This unattractive deal results in less buying demand (by Americans and foreigners), so the price of bonds goes down, and raises their interest rates. The dilemma: The fed can either 1) allow interest rates to rise (which hurts stock valuations and eventually the economy) or 2) try to hold down the interest rates by buying bonds with printed money. But when they print money, they accelerate the devaluation the dollar and raise monetary inflation pressures. Meanwhile people seeing the value of their bonds fall (as bond prices fall), feel the pressure to sell bonds at the same time the government is selling. This creates the danger we’re in as interest rates keep rising because of the increasing pressure to sell bonds. Allegedly this is an inevitable situation that happens at the end of the long term debt cycle and the life cycle of a world power. It may signal the transition of the old to the new world order (aka China). Dalio is predicting higher interest rates towards the end of the year as growth and inflation become stronger. He says the important signal that things are going downhill will be when the fed proceeds to buy bonds when the economy and inflation are strong. He describes the effects of monetary inflation, which reduces your cash spending power by about 2% s year. TL:DR 
Cash is trash and interest rates will continue to rise, and America is in decline.

Allison transmissions is a mature business with a strong brand moat throwing off high free cash flows, consistent dividends, and repurchasing a lot of stock. It's been basically trading sideways as people looked to stay away from cyclical stocks as the bull market kept marching on. It may also have been unpopular as the electric vehicle revolution has been taking off, while ALSN is viewed as a typical low growth steady boring value stock. Allison has had the majority of the automatic transmission market in Class 6-8 trucks (think dump trucks, school buses, moving trucks, other construction trucks, any big truck doesn't "hinge" like tractor trailers). These vehicles encounter a lot of city traffic and/or construction sites and encounter frequent stop and go situations. Automatic transmissions allow much simpler and efficient operation of these vehicles, which Allison can customize and service for each customer. If there's a shift to more value play stocks and the economy starts up again with the vaccine rollout, we could see Allison get even more aggressive with their share repurchases, turning this into an "uber cannibal" as Mohnish puts it.

my mistake I mistyped. The host said he would upload the conversation to: https://constine.club/ Transcript of the clubhouse meeting: https://constine.substack.com/p/pressclub-with-mark-zuckerberg-daniel Podcast: https://pod.link/1547512963/episode/2e7738d287b998caee38626ac1c6bce9

What kind of companies would you say would benefit from an interest rate increase? Howard Marks writes in his latest memo: “Because the primary risk lies in the possibility of rising inflation and the higher interest rates that would bring, I think portfolios have to make allowances: even though we can’t predict, we should prepare. This possibility means (a) bonds with maturities much above ten years are obvious candidates for underweighting and (b) inflation beneficiaries should be considered for overweighting, including floating-rate debt, real estate capable of seeing rent increases, and the stocks of companies with the power to pass on price increases and/or the potential for rapid earnings growth.”

Has anyone read the series "The Changing World Order" by Ray Dalio on his linkedin page? https://www.linkedin.com/in/raydalio/ An extremely thorough analysis on previous cycles of empires/countries and how they've risen and fallen, and where we are now. Dalio says the US is basically in its decline phase in the big cycle (approximately 75% +/-10% of the entire cycle). America has had the longest cycle so far at 245 years. The likely new order will be China, who owns the most foreign reserves. He paints a somewhat frightening picture of past transitions of the old to the new order. Increasing debt, and inability to stimulate the economy, and losing the status of the world reserve currency leading to civil wars between the rich and poor and eventual demise of the old order. However, he suggests it can be done more thoughtfully and peacefully. Reading some of Dalio's ideas makes me wonder what affect this will have and how I can position myself to prepare for a potential downturn. Perhaps bitcoin will be a big part of a defensive portfolio. I haven't read these fully... it's a somewhat intimidating amount of dense material.

my mistake I mistyped. The host said he would upload the conversation to: https://constine.club/

Zuckerberg was just on clubhouse. I caught some of the middle to end of the conversation. It's supposed to be uploaded to constine.club in a bit Zuckerberg said he's confident that FB will come out strong after the iOS 14 update. He referenced the success they maintained in Europe after the GDPR regulations went into effect. What he had an issue with was the wording of the iOS 14 privacy pop up. He believes ad supported products are the way to go in order to give everyone access to the tools that were only typically available for larger companies in the past. Zuckerberg said he was more worried about Apple's unfair use of "private api's" which only Apple can use. He mentioned the ability of apple airpods and iWatch to connect to the iphone much quicker than any of the competitors could because no one else was allowed access to these private api's. Also how there's no way to switch to a different default messaging app than iMessage, and how iMessage comes default with notifications enabled. Seems like Zuckerberg is optimistic about the audio-only space and will be releasing some tools soon. After listening to this conversation, I can tell that Zuckerberg remains passionate about constantly improving and introducing new features to FB, and that he's annoyed at Apple's lack of "fairness".

What do you think about the "war" between Apple and Facebook? Apple's upcoming iOS update would hurt FB's growth by hampering its ability to collect data from its users. Apple will require app makers to send a push alert that asks them to "allow" or "ask app not to track" to curb data harvesting from users. This directly hurts FB's ability to show targeted ads. In retaliation FB has been spending money on ads on TV and in newspapers saying that changes to apple's iOS will hurt small businesses. It looks to me like Facebook realizes this may be a huge hit if Apple is able to keep pushing towards privacy. It looks like this is just the beginning of a long battle between the privacy gatekeepers and the data collectors. "A recent study from the group TapResearch found that 55% of people surveyed said they would not let Facebook track them across apps if they were prompted." https://www.npr.org/2021/02/26/971367875/why-is-facebook-launching-an-all-out-war-on-apples-upcoming-iphone-update

Li Lu reduced his position in FB by 27% in Q4 2020 when FB was around $250 - $290. This has given me pause by jumping in with both feet. Not quite sure if he realized a mistake in his positioning size, his thesis, or if he found a better opportunity. Based on FB's marketcap of $800B we don't have as much potential to get outsized returns. Any thoughts? The quick rise of apps like Clubhouse, the persistence of Snapchat, dominance of Roblox (with the younger generation), and the start of monetization of Twitter shows that FB has to constantly fend off competitors for engagement. I feel like among the FAANG stocks Facebook is the most beaten down and undervalued. It will be challenging for them to grow at the same rate that we've been used to. However I still like that they are a "spawner" that consistently is looking for new ways to expand their business.

This is interesting to me just because my experience with it is so different. Obviously crypto is seeing more headlines now after it's 5x run, but my experience is that the interest in it still isn't close to what it was in 2017. In my own anecdotal experience, my little brother's college friends were trading shit-coins and getting "rich" in 2017. My NYC finance friends were talking about buying lamborghinis with their crypto profits. I couldn't go to a holiday party at Thanksgiving or Christmas or Ned Years in 2017 without cyrpto being a topic of conversation for people there. Now? Not a peep out my bro's college friends last time I checked in with him (a month or so ago around 35-40k), I have one friend in NYC who still owns Ethereum, and nobody really ralks about it in my social circle except for me. So to me it looks like retail interest is still relatively minimal while it seems it truly is institutional demand pushing the price. While I don't think BTC's boom bust cycle is over, I do think we have further to boom before the eventual bust. The pullback from 40k to 30k was a healthy consolidation that lasted 2-3 weeks. My guess is that we'll pull back to 35-40k for another consolidation in the near future. I don't think this run exhausts itself before 100k though (which would still be shallow compared to prior rallies). Consider 2017. Prices start ~$900/coin and rallies to ~7k by early December. And then goes from 7k to 20k in 4-5 weeks. A massive blow off top that accelerated at the end. We've just seen the rally from 10-12k to 57k over the course of 5 months (akin to the 2017 run) , but haven't yet seen the blow off top IMO. I imagine this will be a 30-50% correction/consolidation like January proved to be and that we'll continue to move higher in the near term. My best guess is this exhausts itself somewhere around 120k a coin, but we'll probably have two or three more 30-50% pull backs along the way. Michael Saylor had a recent podcast on The Bitcoin Standard Podcast where he was explaining how this wave of buying was different from the past ones because of the incoming institutional investors' size and typical holding period. They are able to move the market cap of Bitcoin at $1 trillion more meaningfully due to their size, and able to create less downside volatility because they're allocating a relatively small portion of their overall portfolios to bitcoin as an alternate store of value. This could mean we are in the early stages of mass adoption and likely see the price move much higher rather than lower with the replacement of bitcoin's base of retail adopters with institutional investors.