BB - BlackBerry

[hardincap]

I dont mean to imply that he didn't think SOYA investing was not appropriate with small capital, i meant he wouldn't have excluded short term "special" situations, like how he'd borrow money from a bank for arbitrage opportunities. i remember reading that he remarked to mohnish that if he were running small amounts he'd buy and sell instead of "holding forever".

 

re 1% of rimm, i agree you  need to do dd for a potential 10% commitment, I just think NCAV is a very good lower bound for a technology company that is FCF positive, has prem watsa buying tons at $16, still significant roe, huge patent holdings that competitors would love to acquire, etc.

 

i am a big believer in the core principle of munger's SOYA investing--that huge opportunities are rare and you should optimize for these. I just checked apples stock price and am feeling the pain of buying it at 90s in 09 and selling it to buy axp instead. probably comes down to preference, and mine is to take advantage of small wiggles in inefficiency regardless of position sizing appropriate.

 

we're probably getting tangled up in semantics and small details; we're mostly on the same page.

 

[hardincap]

lets also keep in mind 7mil in '74 is more like 30m today-- no small amount.

[merkhet]

I'm a SOYA investor (really like that acronym -- I'm gonna start using it) that also doesn't plan on holding most of my holdings forever.  After all, most companies hit or exceed intrinsic value, and there's usually a new and interesting opportunity that may also be a long-term compounder that I can shift into.

 

My sense is that the buy and hold forever thing is more a function of Berkshire's size and prominence than anything else.  After all, they should have sold Coke in 2000 when it was trading for a ridiculous price, but it's hard to do that when you're such a prominent shareholder and have such a huge position.  Perhaps that's what Charlie meant when he spoke with Mohnish.  He wouldn't hold anything up to IV if there were other good buys around to shift into.

 

Back to RIMM though, we actually do agree on everything that's "known" right now.  NCAV is a pretty good place to buy most companies (maybe even tech companies) that are FCF positive, Prem's a smart guy and I doubt he's succumb to confirmation bias and RIMM has a large amount of patents.

 

The only thing for me is that I'm insanely curious about why RIMM has such a high growth rate in international.  My guess is that Prem has done the diligence on that and found it to be acceptable/good/whatever, but I'd like to know more before entering a position of my own.

[prunes]

Not to be a pedant but I believe RIMM is only trading at NAV. RIMM would need to fall another 50% or so to trade at NCAV, I believe.

[hardincap]

I'm a SOYA investor (really like that acronym -- I'm gonna start using it) that also doesn't plan on holding most of my holdings forever.  After all, most companies hit or exceed intrinsic value, and there's usually a new and interesting opportunity that may also be a long-term compounder that I can shift into.

 

My sense is that the buy and hold forever thing is more a function of Berkshire's size and prominence than anything else.  After all, they should have sold Coke in 2000 when it was trading for a ridiculous price, but it's hard to do that when you're such a prominent shareholder and have such a huge position.  Perhaps that's what Charlie meant when he spoke with Mohnish.  He wouldn't hold anything up to IV if there were other good buys around to shift into.

 

Back to RIMM though, we actually do agree on everything that's "known" right now.  NCAV is a pretty good place to buy most companies (maybe even tech companies) that are FCF positive, Prem's a smart guy and I doubt he's succumb to confirmation bias and RIMM has a large amount of patents.

 

The only thing for me is that I'm insanely curious about why RIMM has such a high growth rate in international.  My guess is that Prem has done the diligence on that and found it to be acceptable/good/whatever, but I'd like to know more before entering a position of my own.

 

i highly doubt it has a competitive advantage that is sustainable in intl markets, but thats just imo. ask anyone in india and they'll tell you iphones are coveted now. asia too. but user behavior in those markets (and africa too) is very much text heavy, a plus for blackberry. also, blackberries are closer in consumers' price range in those markets. i think its a bit like the microsoft story - not sexy, subsiding growth rates but still riding this huge wave of mobile technology which in the international markets will go on for a while.

[merkhet]

 

i highly doubt it has a competitive advantage that is sustainable in intl markets, but thats just imo. ask anyone in india and they'll tell you iphones are coveted now. asia too. but user behavior in those markets (and africa too) is very much text heavy, a plus for blackberry. also, blackberries are closer in consumers' price range in those markets. i think its a bit like the microsoft story - not sexy, subsiding growth rates but still riding this huge wave of mobile technology which in the international markets will go on for a while.

 

 

I'm actually headed to Asia for a little more than a week tomorrow morning, and I hope to confirm the pricing story along with the 2G and 2.5G story.  It would be VERY interesting if international markets were heavy in Africa, as I believe the infrastructure for 3G will take longer to develop there than elsewhere.  I really hope this is where Prem will shine, as I'm hoping he will make a push for more transparency in their reports.

 

prunes, I agree with someone else on this thread (forgot who mentioned it) that NCAV will likely be at around $10 a share by the end of the year, depending on capital allocation decisions -- so it's darn close right now.

[hardincap]

 

i highly doubt it has a competitive advantage that is sustainable in intl markets, but thats just imo. ask anyone in india and they'll tell you iphones are coveted now. asia too. but user behavior in those markets (and africa too) is very much text heavy, a plus for blackberry. also, blackberries are closer in consumers' price range in those markets. i think its a bit like the microsoft story - not sexy, subsiding growth rates but still riding this huge wave of mobile technology which in the international markets will go on for a while.

 

 

I'm actually headed to Asia for a little more than a week tomorrow morning, and I hope to confirm the pricing story along with the 2G and 2.5G story.  It would be VERY interesting if international markets were heavy in Africa, as I believe the infrastructure for 3G will take longer to develop there than elsewhere.  I really hope this is where Prem will shine, as I'm hoping he will make a push for more transparency in their reports.

 

prunes, I agree with someone else on this thread (forgot who mentioned it) that NCAV will likely be at around $10 a share by the end of the year, depending on capital allocation decisions -- so it's darn close right now.

 

friend in brazil just told me b/c of tariffs on iphones, blackberries end up being 1/2 to 1/3 of cost of iphones, so value/price is much better.

 

if you believe ncav will be $10/sh by EOY, its a no brainer to sell $10 puts. you'd be buying the co for less than NCAV! Crazy for a co with huge monetizable intangibles (patents). but how do you calculate $10 by EOY? I think if the company keeps acquiring cos and spends up for marketing its new line of bbs, they could potentially be cash flow flat for the rest of the year.

[merkhet]

 

friend in brazil just told me b/c of tariffs on iphones, blackberries end up being 1/2 to 1/3 of cost of iphones, so value/price is much better.

 

if you believe ncav will be $10/sh by EOY, its a no brainer to sell $10 puts. you'd be buying the co for less than NCAV! Crazy for a co with huge monetizable intangibles (patents). but how do you calculate $10 by EOY? I think if the company keeps acquiring cos and spends up for marketing its new line of bbs, they could potentially be cash flow flat for the rest of the year.

 

 

Interesting re Brazil -- thanks for the data point.  I'll take a look at the retail stores in Asia and see if it's similar.

 

It's not a detailed calculation by any means, but NCAV is at around $3.3 billion right now, and I'm guessing they can boost cash by around $2 billion for the full year -- barring any terrible capital allocation decisions -- divided by half a billion in shares outstanding and that's an NCAV of around $10.

 

The problem with selling puts, IMHO, is that while it looks like a 1% position, you're committing to make it a substantial part of your portfolio -- and so I need to know a little bit more about international.

[hardincap]

that is where we differ. if i can buy at lower than NCAV, i dont really care about international. i know generally it probably wont fall drastically over the next year, and that is good enough for me. remember patent holdings are substantial:

 

http://www.businessweek.com/magazine/the-biggest-ip-war-chests-08042011-gfx.html

 

maybe I'm looking at this as cigar butt vs long term value

[Guest valueInv]

Things not looking good for RIMM in Canada:

 

http://gigaom.com/mobile/woe-canada-rim-falls-behind-iphone-on-home-turf

[Parsad]

I was watching "Dragon's Den" yesterday, and they had some of the deals that were made in the last two years.  In one segment shot in 2010, all of the Dragons pulled out their Blackberries, and then one said..."Everyone's got to have a Blackberry!"  I chuckled to myself and said just two years...just two years later!  They are toast in North America.  They've got to fortify the brand in emerging markets, as they've already lost the battle here.  Cheers! 

[Guest valueInv]

They've got to fortify the brand in emerging markets, as they've already lost the battle here.  Cheers!

 

How?

[Parsad]

They've got to fortify the brand in emerging markets, as they've already lost the battle here.  Cheers!

 

How?

 

Need to differentiate in emerging markets.  Why does GM sell the most cars in China?  Because they are better or more popular than BMW, Hyundai, Mercedes, Volkswagen or Ford? 

 

A brand can become ubiquitous when it starts to mean something.  People don't buy Apple products or Coca-cola only because they are of better quality.  It's the brand mostly...the experience!  Cheers!

[Guest valueInv]

They've got to fortify the brand in emerging markets, as they've already lost the battle here.  Cheers!

 

How?

 

Need to differentiate in emerging markets.  Why does GM sell the most cars in China?  Because they are better or more popular than BMW, Hyundai, Mercedes, Volkswagen or Ford? 

 

What they need is a prayer:

 

http://blog.flurry.com/bid/83261/China-Now-Leads-the-World-in-New-iOS-and-Android-Device-Activations

[dcollon]

RIM to Give Developers Prototypes of New BlackBerry in May

 

http://www.bloomberg.com/news/2012-03-23/rim-to-give-developers-prototypes-of-new-blackberry-in-may.html

 

[Parsad]

They've got to fortify the brand in emerging markets, as they've already lost the battle here.  Cheers!

 

How?

 

Need to differentiate in emerging markets.  Why does GM sell the most cars in China?  Because they are better or more popular than BMW, Hyundai, Mercedes, Volkswagen or Ford? 

 

What they need is a prayer:

 

http://blog.flurry.com/bid/83261/China-Now-Leads-the-World-in-New-iOS-and-Android-Device-Activations

 

It can be done, but you need a game changer.  Look at Nintendo with their Wi, which totally changed the face of home video games and restored Nintendo.  But you have to continue to innovate and stay ahead of the competition, otherwise you get an Xbox Kinect that will destroy your moat. 

 

This is the same issue with Apple.  To stay in the lead, they can't just be good or on par...they have to be great!  Technology moats breakdown very quickly.  RIMM's reign on top wasn't even three years ago.  Today, they are quickly becoming obsolete.  They need a game changer!  Cheers!

[prevalou]

Without à game changer Microsoft continues to be at the top.

[Parsad]

Without à game changer Microsoft continues to be at the top.

 

Are they?  Remember, it was just a bit of luck that prevented Microsoft from blowing $40B on Yahoo!  That bit of luck was Jerry Yang's stupidity.  ;D 

 

Microsoft is no longer on top, but they aren't falling off a cliff like RIMM either.  Their moat was just so large that it has taken a long time to dethrone them.  And it still may take another decade to completely do that.  Remember Buffett saying that if someone gave him $100B to dethrone Coca-cola, he said it could not be done.  Microsoft is not Coca-cola, but the moat was significantly larger than most technologists and investors thought.  Cheers!

[Guest valueInv]

Without à game changer Microsoft continues to be at the top.

 

Are they?  Remember, it was just a bit of luck that prevented Microsoft from blowing $40B on Yahoo!  That bit of luck was Jerry Yang's stupidity.  ;D 

 

Microsoft is no longer on top, but they aren't falling off a cliff like RIMM either. 

I think he means in the gaming industry. Nintendo lost out.

[Parsad]

Without à game changer Microsoft continues to be at the top.

 

Are they?  Remember, it was just a bit of luck that prevented Microsoft from blowing $40B on Yahoo!  That bit of luck was Jerry Yang's stupidity.  ;D 

 

Microsoft is no longer on top, but they aren't falling off a cliff like RIMM either. 

I think he means in the gaming industry. Nintendo lost out.

 

Well in terms of game consoles, Kinect was a game changer.  It took the remote control completely out of the equation and was the fastest selling electronic appliance in history at the time.  The technology will continue to create some pretty amazing scenarios for gaming going forward.  Cheers!

[AZ_Value]

There's also that "little fact" that to this day 90% of computers in the world still have Windows as their OS.

I really don't see the analogy between RIMM and MSFT

[prevalou]

Ibm is not à game changer but is still à good company in which Buffett invests. So mach for the lack of competitive advantage sustanibility of technology companies. Buffett would probably have invested in Microsoft if Bill Gates was not on Berkshire board. So much for à moat that has to disappear In the next 10 years.

[prevalou]

Of course Rimm has not msft competitive advantage but its market capitalization is quite different. The brand value and patents value are zero if mr market is right.

[DCG]

There's also that "little fact" that to this day 90% of computers in the world still have Windows as their OS.

I really don't see the analogy between RIMM and MSFT

 

me neither.

[compoundinglife]

Ibm is not à game changer but is still à good company in which Buffett invests. So mach for the lack of competitive advantage sustanibility of technology companies. Buffett would probably have invested in Microsoft if Bill Gates was not on Berkshire board. So much for à moat that has to disappear In the next 10 years.

 

Comparing RIM, IBM, and MSFT is a non starter. You need a game changer when you are the underdog, like Apple did when it was working on the iMac and iPod. RIMM needs their equivalent to survive. The leaders just need to keep kicking them when they are down.

 

To entertain the comparison of IBM, MSFT and RIMM

 

IBM is a global IT services company that will sell you hardware, sell you software, help you build out a private cloud, a super computer cluster or just run your companies IT. I worked on a project with a large Utility company a few years back and the project manager was contracted from IBM Global Services, he wasn't a tech guy he was a plain old project manager that they were paying a billable hourly rate for, I was fairly surprised by this. In some ways IBM is like a combination of Accenture, a well managed HPQ, and a software company. They help companies solve IT problems and while they have their own solutions they would like to sell, they will work Oracle or other partners because they are focused on providing customers with solutions that meet their needs. Also, I am pretty sure WEB never said tech companies don't have moats he said he did not understand them enough to know if they are sustainable.

 

People love to bash MSFT as well but keep in mind the business world still runs on MS Office and MS Exchange. For large companies that have to manage thousands or hundreds of thousands of desktops and laptops MSFT is still the winner. In a large corporate MSFT shop the IT guy can disable/enable you ability to access some part of the control panel on your laptop with a few clicks. Apple does not compete in that space in a meaningful way at the moment but they are making some moves that indicate they might be. But to date most of Apple's presence in corporate america is IMO a result of people loving their products outside of work and then back dooring them into large enterprises.

 

Now RIM on the other hand is a company whose advantage was being a first mover in decent mobile messaging/email. When the IPhone was launched with ActiveSync to talk to corporate MS Exchange Servers, that was a HUGE nail in the RIM coffin. IPhone  w/MS Exchange offered equivalent (IMO) over the air security if setup properly, it did not require paying RIM for every device you want to hook up to your email server, provided a user experience that people fell in love with. The only place it was inferior to RIM was on physical device security, being able to encrypt the mailbox on the device, do a remote wipe etc.. But that has been getting better and better and in fact now Apple has MDM a complete management platform for their mobile devices that allows companies to manage their apple device (iphone/ipad) deployment: http://www.apple.com/iphone/business/integration/mdm/.

 

Notice what I said above about MSFT owning the corporate desktop, then look at Apple MDM. Then think about why Apple is so hot to make newer versions of their desktop OS act more like the iPad and iPhone. If they get their foot in the door at companies proving they can provide the management capabilities IT departments need on mobile devices, transitioning to doing the same on Mac laptops and desktops in enterprises will be more of reality.

 

But I guess the point is, RIM's moat was not very strong so it was destroyed quickly. MSFT's is much stronger and covers way more ground so Apple will have to work very hard for a long time to slowly erode it.