What stocks will make their owners rich over the next generation?

[roughlyright]

I own Banco Santander so I was looking at its competitor BBVA for a comparison. Very interesting. BBVA adopted a new control system designed by Accenture that won the Best Bank award in 2013 for that category. The system allows real time financial information. Second, they purchased Simply based in Oregon which is a banking interface as revolutionary as the IPhone. There is a website with an explanatory video. BBVA Compass has 785 branches across Southern US and the financials were unusually easy to read with improving numbers. Is this a result of the Accenture system?

 

BBVA is similar to SAN with a big expansion across Latin America. The financials are much worse than SAN but improving. Perhaps an innovative bank in a hated industry with geographical spread from a depressed valuation might hit 50 fold gains?

 

Idea #2 is Prem's new India fund. India hits demographic peak in 2035 so investing now is like investing in US 20 years before their demographic peak in 1999.

 

Idea #3 is to create a startup for listing on the CSE the Canadian Securities Exchange which is run by and for entrepreneurs with dramatically lower costs. Trading exploded with the marijuana boom. Perhaps we can convince Sanjeev to start a junior BRK allocating capital starting with a marijuana supplies company which is scalable. It is way easier to hit 50x starting from pennies in a hot new industry which will soon enjoy $200B revenues. It would be instructional to create a business plan thread for the idea called "IPOs for Sanjeev" to take advantage of the astute business minds on this board and to encourage him to take the leap. The exercise might help pick out the types of business models most likely to achieve the 50x goal. Most often the opportunities requires capturing a wave. So you need both a good model and an industry with rapid growth like Solar City but with a better moat. In the 1930s the richest man in UK made his fortune taking over failing companies then putting in place management and new business plans. Sanjeev would be good at that. The ability to disrupt and the speed of change is increasing so a junior BRK model is more likely to achieve the 50x goal. SoftBank enjoyed such gains by early investments in Alibaba etc. most of which were private at the time of investment. We need Sanjeev's public vehicle to be able to share such gains.

 

Aberhound,

 

  How can a retail investor, invest in Prem's India fund?

[Guest ajc]

 

I think there are some simple but maybe workable ways to think about this stuff.

 

Say you take the 500 top companies in the US by market cap. Someone has already pointed out that from those will come a few really major winners. So they're already there and staring you in the face anyway.

If you think about it, there seem to be some qualities and variables that are often associated with these investments.

 

Just two of them, are that the company be run by an owner-operator (preferably founder owner-operator) and that the industry be a growth or new sector of the economy.

 

I'm not sure how many companies that leaves you with out of 500, but my guess is that narrows it down substantially.

Obviously, there are many ways to bet and this is just one but Standard Oil, Walmart, McDonalds, IBM, Teledyne and FedEx (as well as many others) all had both those qualities.

 

Of course, the other important variables to consider are whether they have a bunch of key competitive advantages that are durable and if they're financially strong and responsible.

So, I would think that if you stick to businesses with owner-operators in growth industries with very high all-round business standards as well as a few really great competitive advantages then you could narrow down the list quite some way.

That doesn't mean you can't still get it wrong, but you'll likely be a fair amount closer to an answer than you were when you started looking.

 

Some names that come to mind for now (others have mentioned them) are Amazon and Colfax. They have track records, reasonably long runways ahead of them and check a high percentage of the boxes.

 

Also, one other thing is that growing the company is less important than growing the per share value. I'm not saying it doesn't matter, but from the investment perspective it's where the focus should be. So operators who care about buying back shares and various smart forms of capital allocation would perhaps stand a noticeably better chance than others. Then, free cash flow is another metric I'd like to know about.

 

Somewhere like the Horizon Kinetics Wealth Index (http://www.ise.com/etf-ventures/index-data/horizon-kinetics-ise-wealth-rch/) could be one place to start. Then you just work backwards from there.

 

I wonder if a person could even wait for a market cycle after they IPO before taking a company really seriously.

That way you'll know they've survived one recession or crash already, and I'm not sure it would have mattered if you'd waited some time to buy a Walmart or McDonalds after they went public.

 

 

 

[LC]

Branded marijuana. Who will be the Marlboro of Marijuana?

[PatientCheetah]

 

Good overview on the state of MJ market

[Dustin T]

 

I think there are some simple but maybe workable ways to think about this stuff.

 

Say you take the 500 top companies in the US by market cap. Someone has already pointed out that from those will come a few really major winners. So they're already there and staring you in the face anyway.

If you think about it, there seem to be some qualities and variables that are often associated with these investments.

 

Just two of them, are that the company be run by an owner-operator (preferably founder owner-operator) and that the industry be a growth or new sector of the economy.

 

I'm not sure how many companies that leaves you with out of 500, but my guess is that narrows it down substantially.

Obviously, there are many ways to bet and this is just one but Standard Oil, Walmart, McDonalds, IBM, Teledyne and FedEx (as well as many others) all had both those qualities.

 

Of course, the other important variables to consider are whether they have a bunch of key competitive advantages that are durable and if they're financially strong and responsible.

So, I would think that if you stick to businesses with owner-operators in growth industries with very high all-round business standards as well as a few really great competitive advantages then you could narrow down the list quite some way.

That doesn't mean you can't still get it wrong, but you'll likely be a fair amount closer to an answer than you were when you started looking.

 

Some names that come to mind for now (others have mentioned them) are Amazon and Colfax. They have track records, reasonably long runways ahead of them and check a high percentage of the boxes.

 

Also, one other thing is that growing the company is less important than growing the per share value. I'm not saying it doesn't matter, but from the investment perspective it's where the focus should be. So operators who care about buying back shares and various smart forms of capital allocation would perhaps stand a noticeably better chance than others. Then, free cash flow is another metric I'd like to know about.

 

Somewhere like the Horizon Kinetics Wealth Index (http://www.ise.com/etf-ventures/index-data/horizon-kinetics-ise-wealth-rch/) could be one place to start. Then you just work backwards from there.

 

I wonder if a person could even wait for a market cycle after they IPO before taking a company really seriously.

That way you'll know they've survived one recession or crash already, and I'm not sure it would have mattered if you'd waited some time to buy a Walmart or McDonalds after they went public.

 

I really like the two qualities you identified. A disproportionate number of truly great investments have owner operators. I keep a list of companies that have been tremendous investments and about half were new industries the other half are often growth industries like Steel during Carnegie's time but they just as often fit more into the McDonalds, Walmart, or Starbucks types. None of these were growth industries necessarily until Krok, Walton, and Schultz transformed the way we looked at dining out, discount retail, or a corner coffee shop.

 

I think very old industries that are being transformed by new thinking or technology can be just as fruitful as new industries.

 

An industry that comes to mind for me is booming in the Dakota's as we speak and helping to boost Burlington Northern's profits. I'm reading Oil 101 currently trying to broaden my circle of competence into the energy sector. There could be a Rockefeller out there rising from the Bakken formation. I'd be interested if anyone has any interesting companies in this sector identified. It's an old industry but new technology is being used so it's a fertile ground for a strong growth story.

[Spekulatius]

i googled BH. i got bunch of titties in image seach. and biglari holdings. no berkshire :D

 

conclusion: google more titties, get more accurate results.

 

I just tried it, google then hit images.  That is odd.  What does google think BH stands for?  Big Hooters?

in dutch it stands for bra

 

BH=Buestenhalter (german=Bra)

[txitxo]

  The safest bet are probably natural resources. China, India and Latin America have about 3.2B people, three times more than Europe and the US put together. The average GDP/person of China and Latam is about 9000$, India has 4000$. If, in the next 20 years, these countries get close to, let's say, typical Southern/Eastern Europe GDP/person, 20,000-25,000$ (and I don't see any reason why they shouldn't), they will need to spend a tremendous amount in infrastructure. The china-induced boom we have seen during the last 10 years has only been the beginning. So regardless of what happens in the short term (China's credit problems, etc.), 20 years from now prices for iron ore, oil, gas, etc. must be much higher than they are now. This is such a clear conclusion that I don't see what could change it, not even a major catastrophe, like a war in East Asia.

 

  So, if I had to buy something now, and leave it there for 20 years without touching it,  I would get a basket of companies with lots of stuff in the ground, which are reasonably well run (honest management is essential) and which are undergoing short term problems. Even if the CEOs are not  geniuses, the tailwinds will lift them much higher in the next two decades. One such company I like is Corridor Resources (although it has more than doubled since I bought it). If Altius were to remain an independent company, that probably would be another good option. More speculative stocks are Mobius Resources or Petrobank (now Touchstone). I have also been looking at companies with oil in places undergoing turmoil, like Yemen (Calvalley Petroleum). The cheapest mining company in the world is RAND mining. But I don't think they pass the honest management test.

 

  Of course it is much easier to make 20% a year "trading". But some people seem to consider that as sinful as going to a steakhouse during Lent.

 

[Uccmal]

 

 

I agree value-investing isn't about holding stocks forever, especially if you want say 20% returns. Almost no stock can return 20% in the long term. So you buy something undervalued and then when it reaches intrinsic value in a reasonable time you move on. Thus achieving very high rates of return. Very high rates of return requires holding for short term. I am sure when Buffett got started in the early 50's his holding time wasn't long either. HOWEVER, you have to have a fundamental long term view of the company you are buying.  When I see someone buying an option on this board (no offense plz don't flame me) to magnify returns I really think that is short-termism. 

 

 

 

Randomep, You knew this was coming. lol.

Your wrong about the options , or the thinking behind them, at least.  I can only speak for myself.  I only buy Leaps on stocks I perceive as being  significantly undervalued.  I have analyzed, and in some cases (Ffh, Bac, Wfc, Jpm) held the stocks for some time already when a dislocation appears.  Options are simply leverage.  However, when you take them on, you have to think short term in the context of that undervaluation - if short term is considered less than 2 years.  You also, have to be prepared to take gains when they arrive, and re date the options as necessary, should they lose value.  Probably it can best be described as a short term strategy within a longer term goal. 

 

I can absolutely guarantee that if Buffett were starting out now he would use Leaps.  And FFh trades frequently.  The only time Prem likes " the guys in charge" is when they are left holding the bag for a few years. 

 

That said, when I come across a company I really like for the long term, that pays a dividend I will keep it.  i.e seaspan for 5.5 years.

 

I am very interested in learning how you gauge timeframe. Do you think in terms of upcoming events? Business at an inflection and early signs of improvement are present? Abnormal stock behaviors - e.g. breaking from a long term downward trend? Thank you for the input.

 

Check out the BAC warrants thread.  Very simply I keep the time frame as far out as possible.  When the new Leaps cycle comes out in the fall I will sell down my 2016s opportunistically, for 2017s unless BAC has come to value 22-25 (to be adjusted as events unfold).  I am willing to take a loss on the Leaps, to push out the expiry.  I.e. I only hold a handful of Jan. 2015 leaps (JPM, AIG) at this time.  These are well in the money.  The rest are 2016s.  This protects me from events.  I have also, catastrophically protected my BAC leaps with shorter term puts, Jan. 12 which I will sell at a loss or expire worthless, unless BAC, drops precipitously, then I will take profits.  The worst case is a down year and I get cash back from prior gains, in prior years.

[Aberhound]

 

Aberhound,

 

  How can a retail investor, invest in Prem's India fund?

 

The Globe article said the fund would be publicly listed so I am watching for it.

 

 

Fairfax to launch India fund after Modi victory

IAIN MARLOW

— The Globe and Mail

Published Friday, May. 16, 2014 7:01PM EDT

Last updated Friday, May. 16, 2014 7:18PM EDT

Prem Watsa is bullish on India in the wake of a landslide electoral victory for Narendra Modi – so much so that the head of Fairfax Financial Holdings Ltd. plans to launch a publicly listed India fund.

 

[yadayada]

what about korean stocks? I got a basket of hyundai samsung and LG. it seems that is a good bet on Asia, and with the new laws this year minority shareholders will be protected. Especially LG and samsung should profit nicely on the boom of the Asian middle class.. And you can buy all those growing company's for sub 10 PE's.

[PatientCheetah]

I think between $500 mil to $2 bil mktcap moderate to high growth companies are the sweet spots for potential 10-50x baggers. They are small enough to not run into law of large numbers for a number of years. They are also large enough to have some access to the capital market and have some track record to do research on. For tech companies, they need to have a revolutionary product that can build up moat relatively quickly. For non-tech companies, they need to have a repeatable recipe to expand on a national schedule - rollups or restaurants/specialty stores fit the bill. Moderate to reasonably high valuation based on 2-3 years out projections is ok because most of returns will come from unexpected growth and reinvestment opportunities.

[Palantir]

Anyone thought about Under Armour (UA)? I don't see why they cannot be Nike and Adidas' equal.

[Spekulatius]

Anyone thought about Under Armour (UA)? I don't see why they cannot be Nike and Adidas' equal.

 

Adidas' market cap is ~22B$ vs UA's ~10B$, so even if UA catches up to them, it's not going to get you far.

 

I think it is pretty far fetched to find a stock that makes you rich based on buy and hold right now, given, extended valuations and a pretty extended economic cycle (5 years into a recovery). Once we head into a recession and the market turns down 30% or more and some baby's do get thrown out with the bathwater, things will get easier.

[PatientCheetah]

Anyone thought about Under Armour (UA)? I don't see why they cannot be Nike and Adidas' equal.

 

Adidas' market cap is ~22B$ vs UA's ~10B$, so even if UA catches up to them, it's not going to get you far.

 

I think it is pretty far fetched to find a stock that makes you rich based on buy and hold right now, given, extended valuations and a pretty extended economic cycle (5 years into a recovery). Once we head into a recession and the market turns down 30% or more and some baby's do get thrown out with the bathwater, things will get easier.

 

I agree completely. I still see some doubles but anything more than that I have to use very wildly optimistic assumptions. We can take solace in that we are getting smarter and we can and will capitalize the next cycle much better.

[Palantir]

Anyone thought about Under Armour (UA)? I don't see why they cannot be Nike and Adidas' equal.

 

Adidas' market cap is ~22B$ vs UA's ~10B$, so even if UA catches up to them, it's not going to get you far.

 

I think it is pretty far fetched to find a stock that makes you rich based on buy and hold right now, given, extended valuations and a pretty extended economic cycle (5 years into a recovery). Once we head into a recession and the market turns down 30% or more and some baby's do get thrown out with the bathwater, things will get easier.

 

I agree it is difficult, but I don't think that means we shouldn't try....as you note, when valuations reverse you will be ready to pounce......

[Palantir]

I'll also put a shout out to Boston Beer Co (SAM). It's still pretty small in the grand scheme of things. I'm still bitter over passing on it at 82, given the amount of due diligence I've done on their products. ;D

[dpetrescu]

How were you able to buy these? Were they the preferreds? I know this has been the subject of a few topics but it seems there is no resolution on how to buy these aside from ver complex transactions with a bank and the weiss fund. Meanwhile prices are increasing. These Korean preferreds seems like the most obvious opportunity, I doubt we will see something as mispriced in a long time. I already regret not figuring this out and buying many months ago when I first learned about them.

 

what about korean stocks? I got a basket of hyundai samsung and LG. it seems that is a good bet on Asia, and with the new laws this year minority shareholders will be protected. Especially LG and samsung should profit nicely on the boom of the Asian middle class.. And you can buy all those growing company's for sub 10 PE's.

[bizaro86]

I've bought Hyundai Motor preferred in London.

 

http://www.bloomberg.com/quote/HYUD:LI

[rkbabang]

I'll also put a shout out to Boston Beer Co (SAM). It's still pretty small in the grand scheme of things. I'm still bitter over passing on it at 82, given the amount of due diligence I've done on their products. ;D

 

SAM is one I found early, I bought it at $21.50 in 2005, and sold way too early ($113 in 2012).  I unfortunately no longer own it.

 

 

 

[yadayada]

I've bought Hyundai Motor preferred in London.

 

http://www.bloomberg.com/quote/HYUD:LI

is it preferred tho? they are super cheap. Not the regular one, they are a bit less cheap.

[bizaro86]

I've bought Hyundai Motor preferred in London.

 

http://www.bloomberg.com/quote/HYUD:LI

is it preferred tho? they are super cheap. Not the regular one, they are a bit less cheap.

 

Yes, it is the preferred. At least according to: http://worldwide.hyundai.com/WW/Corporate/InvestorRelations/IRActivities/IRFAQs/index.html

 

which states:

Hyundai Motor Company shares are listed in Seoul(Common share, Preferred share), Luxemburg(GDR Common share), and London (GDR Preferred share).

[randomep]

  The safest bet are probably natural resources. China, India and Latin America have about 3.2B people, three times more than Europe and the US put together. The average GDP/person of China and Latam is about 9000$, India has 4000$. If, in the next 20 years, these countries get close to, let's say, typical Southern/Eastern Europe GDP/person, 20,000-25,000$ (and I don't see any reason why they shouldn't)

 

 

Oh while I am not necessarily disagreeing with your argument about resources, I will bet my farm that those 3 regions will not reach $20-25k. The reason is that any country like eastern europe, or russia or japan after second world war have a good chance of taking themselves out of their predicament because their people are educated. Japan by the 70's which is just 25yrs after WW2 already was becoming a modern economic power. Today china is 40 years after Mao and the excesses of communism, and still there are 500mil people living in china on $2 a day! The reason is simply education.

 

Today someone who is 10 yrs old living on $2 a day cannot have a decent education, so when that person is 30yrs in 20yrs time, he will make 20-25k? that would be absurd..... not only is he so poor to get an education, there isn't even enough educated knowledgable teachers to teach peope like him.....

 

The demographics is the achilles heel of all large poor populations, even for the educated there isn't enough high level institutions for them, hence many who have the means will send their children overseas...

 

People have been touting china's potential for the last 20yrs, and yes the Shanghai skyline is impressive, but China is still a land of majority poor.  China is yet to make value added products in numbers to even create 100mil $20-25k salary population.

 

I am sure the same factors affect India and South America.

 

 

[yadayada]

what is the exact difference between 1st 2nd and 3rd preferred? I think a lower dividend? But I think so far they actually paid out higher dividends right?

 

Anyway thanks for posting. Are there any other downsides to buying hyundai? AFter minority interests it is trading at 2-3 PE. Which is absurd. Is it really only because buying korean stocks is hard?

[randomep]

Anyone thought about Under Armour (UA)? I don't see why they cannot be Nike and Adidas' equal.

 

Adidas' market cap is ~22B$ vs UA's ~10B$, so even if UA catches up to them, it's not going to get you far.

 

I think it is pretty far fetched to find a stock that makes you rich based on buy and hold right now, given, extended valuations and a pretty extended economic cycle (5 years into a recovery). Once we head into a recession and the market turns down 30% or more and some baby's do get thrown out with the bathwater, things will get easier.

 

Yes I get excited just thinking of that day..... someone once said, you make all your money in the bear market, you just dont realize it at the time.

 

HOWEVER, we can spend our lives waiting for the bear, Warren Buffett has said if he was starting over with 1 million he'd be fully invested.....

[wisdom]

China may have had lower levels of literacy in the past but that is not the case anymore with the younger generation. My understanding is that the literacy levels in China are high and they are increasing even in India and Africa.

 

As a society gets richer - it will find the money and ways to educate it's people.

 

I beleive the literacy levels across the world today are over 80%. It is not the same world that existed 30 years ago.