Collection of major market dislocations

[shamelesscloner]

Li Lu, in his 2012 talk at SFSU, said that if he were starting all over again he would first study all the great examples from the past where markets went to the extreme in some small segment of securities that provided a tremendous margin of safety.

 

Here is one opportunity he discovered as a student at Columbia Business School...

"As some of you may know, in the early '90s Russia went through a shock therapy and became a free market almost overnight. In a short period of time, they privatized some of the most prized state assets, including Lukoil (LUKOY) and Gazprom (RTO:GAZP) [Russian oil and gas giants]. And it was so short that most people didn't even understand what it was all about.

 

A lot of the people who worked in those companies, as well as ordinary citizens, were given certificates that could be converted to stock ownership, but most people really didn't know what they were. So somebody could come along with real cash, which they recognized, and they freely gave them away. So as a result of all this, these assets were trading at extraordinarily low prices.

 

How low were these prices? Forget about earnings, just consider the assets on the balance sheet. At the time, the five-year average for oil prices was about $20 per barrel and on a per-share basis, they were trading for as low as 1 cent on the dollar, sometimes half a cent on the dollar, so about 10 cents to 20 cents per barrel of crude oil. And that's not even counting the earnings from the company! It was ridiculous."

 

Let's fill this thread with other examples of huge MOS opportunities from the past! Thanks in advance.

[Jurgis]

Here is one opportunity he discovered as a student at Columbia Business School...

"As some of you may know, in the early '90s Russia went through a shock therapy and became a free market almost overnight. In a short period of time, they privatized some of the most prized state assets, including Lukoil (LUKOY) and Gazprom (RTO:GAZP) [Russian oil and gas giants]. And it was so short that most people didn't even understand what it was all about.

 

A lot of the people who worked in those companies, as well as ordinary citizens, were given certificates that could be converted to stock ownership, but most people really didn't know what they were. So somebody could come along with real cash, which they recognized, and they freely gave them away. So as a result of all this, these assets were trading at extraordinarily low prices.

 

How low were these prices? Forget about earnings, just consider the assets on the balance sheet. At the time, the five-year average for oil prices was about $20 per barrel and on a per-share basis, they were trading for as low as 1 cent on the dollar, sometimes half a cent on the dollar, so about 10 cents to 20 cents per barrel of crude oil. And that's not even counting the earnings from the company! It was ridiculous."

 

Although there were a number of people who exploited this, including Bill Bowder in his first foray to Russia, this was not as simple as it sounds on paper. The competition for certificates of ordinary citizens from various shady "investors" was huge and so was the competition to siphon assets from the privatized companies. Add to this that management of some of the enterprises was crap, you could end up with hugely negative return from "can't lose" situations. My relatives in Lithuania invested in privatized super-prime retail location that was subsequently pretty much run into the ground. Other relatives invested with shady investors who absconded with their investment certificate money. But, yeah, sure there were people who became multibillionaire (in Russia, multimillionaire in Lithuania) oligarchs. Mostly from being deep insiders and grabbing control and assets through legal and shady ways.

 

Individual investor would have done way better with higher longer term return and less risk buying something like Tencent anytime in 200Xs and holding.  ::)

[shamelesscloner]

Thanks for providing more color to the situation Jurgis. That all makes sense. I'll give you an opportunity to prove that you aren't taking advantage of hindsight... what is the Tencent equivalent today so we can all just go to sleep for 15 years? ;)

[Jurgis]

Thanks for providing more color to the situation Jurgis. That all makes sense. I'll give you an opportunity to prove that you aren't taking advantage of hindsight... what is the Tencent equivalent today so we can all just go to sleep for 15 years? ;)

 

That's a great question. Tencent had seven mega trend tailwinds in 200Xs:

- Mobility / mobile device proliferation

- Data / especially mobile data proliferation

- Software / software proliferation

- Games / game proliferation

- Social media proliferation

- Cashless payment growth

- China growth

I could potentially add

- Ad-based monetization growth

 

If you look at world right now, people are looking for next Apple/Google/Tencent.

There are couple of issues:

- there are almost no new mega trends. One could argue that AI is one. OK, let's say it is. That's still just one trend. There is also no company that owns AI space or likely will own AI space in coming ten years+.

- one could argue that past mega trends still have legs. This is true. But any company relying on the old trends either has to compete with incumbents supported by the same trends or to look for niches that incumbents missed. Both make life harder for newcomers.

 

In fact, I'd argue that Alphabet/Google are (still) very strong in the

- Mobility / mobile device proliferation

- Data / especially mobile data proliferation

- Software / software proliferation

- Ad-based monetization growth

- AI growth

trends. They are weaker in others I mentioned.

And Tencent is still very strong in the trends I mentioned for them.

But both Alphabet/Google and Tencent will have lower growth in next 10-20 years because of their size. You still might do (relatively) well holding them.

 

Now, you could find a small(er) company that conquers just one or couple trends going forward, possibly in a large niche. But that's more difficult to predict IMO. Or find a newly emerging supertrend and company that will ride it + using some of the existing trends perhaps.

There are couple trends that people (for long time) argue could supertrend, but so far they haven't really:

- Internet-of-things

- Personalized/genomic medicine

- Widespread nano machining

 

Anyway, you wanted market dislocations. These would be it. Good luck. 8)

[Spekulatius]

Perhaps, the Tencent equivalent today is still Tencent. They have their Fingers in many trends highlighted above.

 

The other prediction is that we should expect to see a few megacaps from Africa. Right now, it seems like it is a wasteland for investing But there an evolving Startup and I would expect a few companies to crack the code within thr next 10 years there. Africa Is pretty diverse, so it hard to expand from one country another even. Perhaps, the Chinese manage to colonize  , womit could be chinese companies dominating this market 10 years out possibly.

[Jurgis]

Someone has said that Africa is the continent of the future and always will be.  ::)

 

It's possible to play on geographical trends. Go SE for South East Asia. MELI (maybe) for LatAm. There were some stocks mentioned for Africa too.

 

Or maybe PROSY for all of the above? Maybe we should resurrect Naspers/PROSY thread and see if anyone has opinions about their capital allocation post-Tencent. It seems that majority of their value is Tencent. I wonder if anyone has done deep dive on the capital allocation/growth of their pieces and not just the SoTP valuation.