PKX - POSCO

[tylerdurden]

Munger's sale is more puzzling for me than Mohnish's. You don't see any changes in Munger portfolio any often so hard to understand why now after keeping the investment for a very long time. Mohnish seems like repurchased and somehow thought Google would give him better upside. He sold 2/3 and Charlie around 90% I think so Mohnish should still have significant exposure as of dec 31. I hope there will be some feedback from the DJC's annual meeting...

 

I was looking into third avenue / Marty Whitman's investments this week through their 13fs and its scary. Initial investment is in 2005 and decreased exposure significantly since then. Probably WEB does not mind that he couldn't get more posco based on underperformance since his initial investment in 2006. Anyways, hopefully next decade will be very different for posco compared to last one  :D

 

One last thought: I think investing into Posco was Munger's original idea so seeing him selling his shares and web still holding after almost 10 years. That's really weird. Perhaps, he really switched into the Korean shares... Anyways, too much mind reading I guess :P

[oddballstocks]

 

Well, when I say ADR arbitrage, I'm really talking about taking advantage of price discrepancies between the ADR and local shares on a long term basis.  Apparently, it's quite difficult to do a traditional arbitrage with ADRs.  (See Damodaran presentation on arbitrage, at 38, http://people.stern.nyu.edu/adamodar/pdfiles/invphiloh/arbitrage.pdf)

 

 

I can confirm this, in theory it is supposedly easy to convert from an ADR to local shares.  I tried this a few years back and hit a brick wall.  While the sponsoring bank might claim this is possible getting them to execute on it is very difficult.  I gave up, maybe others with better connections have had luck.

 

At one point there was a list of ADR/local spreads.  Some of these get fairly large and would make an easy profit if you could arbitrage.  Execution is difficult.  I remember being quoted at $.05 per share to convert. 

[txlaw]

I was looking into third avenue / Marty Whitman's investments this week through their 13fs and its scary. Initial investment is in 2005 and decreased exposure significantly since then. Probably WEB does not mind that he couldn't get more posco based on underperformance since his initial investment in 2006. Anyways, hopefully next decade will be very different for posco compared to last one  :D

 

What has always scared me about Third Avenue's portfolio is not the steady reduction of PKX.  If anything, that made a lot of sense given the possibility of continued deterioration in the steel biz due to China's impact (on both the demand and supply side).  In these types of cyclical commodities, there always seems to be a chance to buy at the bottom of a cycle, so why not adjust the portfolio accordingly?  I've actually always been aghast at the HK/China real estate holdings in Third Avenue's portfolio.

 

I don't think WEB is concerned at all about "underperformance" of PKX.  This is one of those companies that if he actually believes in the value proposition, and does not think things have changed, he will be very, very pleased to buy at current prices.

[tylerdurden]

Agreed that WEB is probably not concerned (most of the time his investment horizon is forever) but I think the price is around what he bought 8-9 years a go so I don't think he would be pleased either. You might have a very long time horizon but at some point you have to look into your returns as well.  With Third Avenue, it's good that they adjusted their PKX exposure last 10 years but that meant they lost a lot of money while doing that...

[wbr]

"I use a rule where I'm unwilling to sell a stock at a loss until at least 2 years have passed and present intrinsic value has to be below present stock price."

 

[txlaw]

Agreed that WEB is probably not concerned (most of the time his investment horizon is forever) but I think the price is around what he bought 8-9 years a go so I don't think he would be pleased either. You might have a very long time horizon but at some point you have to look into your returns as well.  With Third Avenue, it's good that they adjusted their PKX exposure last 10 years but that meant they lost a lot of money while doing that...

 

I think you really have to make a distinction between IV and price when it comes to WEB.

 

First, because he now has a longer timeline than most investors -- IMO, by necessity, not necessarily by choice -- measuring the "performance" of an investment will be heavily weighted towards how IV is changing along with operating performance.  Time to convergence between P and IV is simply less a factor for him these days.

 

Second, because his investment opportunities are definitely more limited when it comes to moving the needle, having opportunities come along in already-owned companies is a positive for him, not a negative.  So, again, if he thinks Posco is a good buy at this price, he will likely be quite pleased to snap up more shares.

 

Of course, if WEB's assessment of Posco has changed, then that's a different story.  It's possible that he may think he made a mistake, just as he did with Tesco.  Or that things have changed in the interim that change the nature of the bet.

[alwaysinvert]

Agreed that WEB is probably not concerned (most of the time his investment horizon is forever) but I think the price is around what he bought 8-9 years a go so I don't think he would be pleased either. You might have a very long time horizon but at some point you have to look into your returns as well.  With Third Avenue, it's good that they adjusted their PKX exposure last 10 years but that meant they lost a lot of money while doing that...

 

I think you really have to make a distinction between IV and price when it comes to WEB.

 

First, because he now has a longer timeline than most investors -- IMO, by necessity, not necessarily by choice -- measuring the "performance" of an investment will be heavily weighted towards how IV is changing along with operating performance.  Time to convergence between P and IV is simply less a factor for him these days.

 

Second, because his investment opportunities are definitely more limited when it comes to moving the needle, having opportunities come along in already-owned companies is a positive for him, not a negative.  So, again, if he thinks Posco is a good buy at this price, he will likely be quite pleased to snap up more shares.

 

Of course, if WEB's assessment of Posco has changed, then that's a different story.  It's possible that he may think he made a mistake, just as he did with Tesco.  Or that things have changed in the interim that change the nature of the bet.

 

Is he really doing any portfolio moves that small these days? It's not like he could easily make this 5b or 10b. To me it seems like buys of this kind of size have been purely up to Todd and Ted in recent times.

[klmehta03]

Can't figure out for Charlie Munger but for Mohnish it can be a tax loss selling for 2014 capital gains

[txlaw]

Agreed that WEB is probably not concerned (most of the time his investment horizon is forever) but I think the price is around what he bought 8-9 years a go so I don't think he would be pleased either. You might have a very long time horizon but at some point you have to look into your returns as well.  With Third Avenue, it's good that they adjusted their PKX exposure last 10 years but that meant they lost a lot of money while doing that...

 

I think you really have to make a distinction between IV and price when it comes to WEB.

 

First, because he now has a longer timeline than most investors -- IMO, by necessity, not necessarily by choice -- measuring the "performance" of an investment will be heavily weighted towards how IV is changing along with operating performance.  Time to convergence between P and IV is simply less a factor for him these days.

 

Second, because his investment opportunities are definitely more limited when it comes to moving the needle, having opportunities come along in already-owned companies is a positive for him, not a negative.  So, again, if he thinks Posco is a good buy at this price, he will likely be quite pleased to snap up more shares.

 

Of course, if WEB's assessment of Posco has changed, then that's a different story.  It's possible that he may think he made a mistake, just as he did with Tesco.  Or that things have changed in the interim that change the nature of the bet.

 

Is he really doing any portfolio moves that small these days? It's not like he could easily make this 5b or 10b. To me it seems like buys of this kind of size have been purely up to Todd and Ted in recent times.

 

Well, it's a position he put into place before Todd and Ted, so I assume he will continue to dictate how that one goes.

 

I agree that it's a difficult one in terms of getting to a big position of the type that WEB likes to take these days.  If anything, it's entirely possible that the initial position was a toe-hold position.  It's not out of the realm of possibility that Berkshire could own a company like Posco one day.

[alwaysinvert]

Agreed that WEB is probably not concerned (most of the time his investment horizon is forever) but I think the price is around what he bought 8-9 years a go so I don't think he would be pleased either. You might have a very long time horizon but at some point you have to look into your returns as well.  With Third Avenue, it's good that they adjusted their PKX exposure last 10 years but that meant they lost a lot of money while doing that...

 

I think you really have to make a distinction between IV and price when it comes to WEB.

 

First, because he now has a longer timeline than most investors -- IMO, by necessity, not necessarily by choice -- measuring the "performance" of an investment will be heavily weighted towards how IV is changing along with operating performance.  Time to convergence between P and IV is simply less a factor for him these days.

 

Second, because his investment opportunities are definitely more limited when it comes to moving the needle, having opportunities come along in already-owned companies is a positive for him, not a negative.  So, again, if he thinks Posco is a good buy at this price, he will likely be quite pleased to snap up more shares.

 

Of course, if WEB's assessment of Posco has changed, then that's a different story.  It's possible that he may think he made a mistake, just as he did with Tesco.  Or that things have changed in the interim that change the nature of the bet.

 

Is he really doing any portfolio moves that small these days? It's not like he could easily make this 5b or 10b. To me it seems like buys of this kind of size have been purely up to Todd and Ted in recent times.

 

Well, it's a position he put into place before Todd and Ted, so I assume he will continue to dictate how that one goes.

 

I agree that it's a difficult one in terms of getting to a big position of the type that WEB likes to take these days.  If anything, it's entirely possible that the initial position was a toe-hold position.  It's not out of the realm of possibility that Berkshire could own a company like Posco one day.

 

Sure, but if he's not really bothering with smaller positions anymore, it's not very likely that he will add.

 

As for a buyout, I think that's very unlikely. Look at how hard it was to acquire Arcelor, and that was at all time highs. Obviously, Berkshire will only make friendly bids, but how many examples are there of foreign owners of big Korean companies? The only one I can think of is GM Korea, and that was acquired under really extraordinary circumstances. Steel companies are even trickier - and this is a formerly state-owned one.

 

Obviously it's in the realm of possibility, but that possibility is very, very remote.

[txlaw]

Agreed that WEB is probably not concerned (most of the time his investment horizon is forever) but I think the price is around what he bought 8-9 years a go so I don't think he would be pleased either. You might have a very long time horizon but at some point you have to look into your returns as well.  With Third Avenue, it's good that they adjusted their PKX exposure last 10 years but that meant they lost a lot of money while doing that...

 

I think you really have to make a distinction between IV and price when it comes to WEB.

 

First, because he now has a longer timeline than most investors -- IMO, by necessity, not necessarily by choice -- measuring the "performance" of an investment will be heavily weighted towards how IV is changing along with operating performance.  Time to convergence between P and IV is simply less a factor for him these days.

 

Second, because his investment opportunities are definitely more limited when it comes to moving the needle, having opportunities come along in already-owned companies is a positive for him, not a negative.  So, again, if he thinks Posco is a good buy at this price, he will likely be quite pleased to snap up more shares.

 

Of course, if WEB's assessment of Posco has changed, then that's a different story.  It's possible that he may think he made a mistake, just as he did with Tesco.  Or that things have changed in the interim that change the nature of the bet.

 

Is he really doing any portfolio moves that small these days? It's not like he could easily make this 5b or 10b. To me it seems like buys of this kind of size have been purely up to Todd and Ted in recent times.

 

Well, it's a position he put into place before Todd and Ted, so I assume he will continue to dictate how that one goes.

 

I agree that it's a difficult one in terms of getting to a big position of the type that WEB likes to take these days.  If anything, it's entirely possible that the initial position was a toe-hold position.  It's not out of the realm of possibility that Berkshire could own a company like Posco one day.

 

Sure, but if he's not really bothering with smaller positions anymore, it's not very likely that he will add.

 

As for a buyout, I think that's very unlikely. Look at how hard it was to acquire Arcelor, and that was at all time highs. Obviously, Berkshire will only make friendly bids, but how many examples are there of foreign owners of big Korean companies? The only one I can think of is GM Korea, and that was acquired under really extraordinary circumstances. Steel companies are even trickier - and this is a formerly state-owned one.

 

Obviously it's in the realm of possibility, but that possibility is very, very remote.

 

It's not like he's going to say, oh, this is a small position, so I will have nothing to do with it anymore (either buying or selling).  The size issue has more to do with where he is going to put his focus when it comes to researching/thinking about investments in publicly traded companies. 

 

For example, Tesco was just a "small position," but he has been taking action on it for several years now (dumping it now, actually).  Similarly, POSCO is a "small position" (under or around $1 billion now, maybe, if he didn't add), but I'm willing to bet he's keeping track of the results and making the buy/sell/hold decision. 

 

As to buyout, I'm not saying that it is likely in the near future.  But if there's any type of foreign biz that WEB would buy, it would be a very well run, unrestricted biz in South Korea. 

 

It's very easy to just assert that, as a bright line rule, steel companies have historically been very important to governments and so you get problems of the sort that Mittal faced, but you actually have to do a bit more work than that to get a good picture of what the probabilities are.  South Korea has been liberalizing their ownership rules for years now.  Check out the US State Department's thoughts on the investment climate in South Korea for a bit of info on which sectors are restricted and which are not.  You'll notice that "ferrous metals refining, smelting, and alloying" is NOT on the list.  Non-ferrous metals refining is, though, which is targeted towards rare earth metals, and so is other power generation, which presumably is about alternative energy.  POSCO could easily make itself salable by spinning off subsidiaries that are not allowed to be wholly owned by FDIs.

 

Anyways, the thesis on PKX shouldn't be based on WEB buying any more shares, and certainly not on a buyout, but I think WEB is certainly going to make the decisions on PKX, and there is a possibility of buyout that is unlikely, but not very, very unlikely.

[jawn619]

Full year end data is out

http://www.sec.gov/Archives/edgar/data/889132/000119312515051442/d874801dex991.htm

 

I think the CEO has been sticking to his plan of paying down debt and the parent looks like it did better in 2014. 2015 is a different story though, and so are all the value sucking subsidiaries.

[sleepydragon]

Just received Posco's annual meeting proxy. Frankly, I am very unhappy with their performance. It has been many years and there's no improvements. I am still holding my shares but I am going to vote NO for all the directors.

[sleepydragon]

anyone know why PKX, the ADR is up so much today?

Also, I didn't see PKX in BRk's annual letter, so maybe WEB sold Posco too?

 

[jawn619]

anyone know why PKX, the ADR is up so much today?

Also, I didn't see PKX in BRk's annual letter, so maybe WEB sold Posco too?

 

it was up in the Korean market yesterday, no specific reason. Also we wouldn't know if WEB sold because posco's a foreign investment

[sleepydragon]

anyone know why PKX, the ADR is up so much today?

Also, I didn't see PKX in BRk's annual letter, so maybe WEB sold Posco too?

 

it was up in the Korean market yesterday, no specific reason. Also we wouldn't know if WEB sold because posco's a foreign investment

 

In Buffett's letter, he usually list the positions that is more than 1bn. Could he sold or pkx is less than 1b now

[topofeaturellc]

The CEO announced a large expected near term disposal target of about a trillion krw.  Last number I had heard was less than half that.  So maybe that's why.

[jawn619]

anyone know why PKX, the ADR is up so much today?

Also, I didn't see PKX in BRk's annual letter, so maybe WEB sold Posco too?

 

it was up in the Korean market yesterday, no specific reason. Also we wouldn't know if WEB sold because posco's a foreign investment

 

In Buffett's letter, he usually list the positions that is more than 1bn. Could he sold or pkx is less than 1b now

 

Did some digging and it's very likely that buffet sold at least some POSCO

He didn't have POSCO in the 2013 letter but has it listed in the 2012 letter.

He reports investments of $1 billion market value by year end.

 

On December 30th 2013, Posco closed at $317,578 KRW Leaving Buffett's investment to be worth 1.2 Trillion KRW, Even adjusting for the 1055 KRW to USD exchange rate, his investment in would be worth $1.1 Billion US dollars.

 

He didn't disclose, which means he either sold some or all of his POSCO in 2013.

 

Edit: Didn't know about the top 15 rule. That could also explain why it doesn't show up in the 2013 filings.

[alwaysinvert]

He only lists the 15 biggest positions since last year. And it wouldn't have qualified above the old $1b threshold this year anyhow.

[txlaw]

I was at the Daily Journal meeting yesterday. 

 

Sounded to me like Munger has just soured on POSCO and the steel industry, generally.  He basically said that POSCO is still the most efficient steel company in the world with technology that nobody else has -- but that the effects of commoditization in the steel industry have been pretty negative for the company. 

 

So it does seem unlikely that there was any sort of shift from the ADRs to the Korean listed stock.

[zenith]

while I got the idea from Munger/Buffet, I also had gotten Tesco and after buffet sold the stock is up nearly 30% and i think the same thing will happen here, it was such a small position for Munger in any case, not sure why you would sell at the bottom. Pabrai also seems to have soured as well, not sure if his friend has though, Guy Spires.

[RadMan24]

I was at the Daily Journal meeting yesterday. 

 

Sounded to me like Munger has just soured on POSCO and the steel industry, generally.  He basically said that POSCO is still the most efficient steel company in the world with technology that nobody else has -- but that the effects of commoditization in the steel industry have been pretty negative for the company. 

 

So it does seem unlikely that there was any sort of shift from the ADRs to the Korean listed stock.

 

That is a risk, very well known risk for Posco's margins.  Did he also mention that if he had to choose a tech company, it would be Google?  It's interesting that Pabrai dumped Posco and bought Google. 

 

Prospects between the two are almost night and day. 

 

[tylerdurden]

I was at the Daily Journal meeting yesterday. 

 

Sounded to me like Munger has just soured on POSCO and the steel industry, generally.  He basically said that POSCO is still the most efficient steel company in the world with technology that nobody else has -- but that the effects of commoditization in the steel industry have been pretty negative for the company. 

 

So it does seem unlikely that there was any sort of shift from the ADRs to the Korean listed stock.

 

That is a risk, very well known risk for Posco's margins.  Did he also mention that if he had to choose a tech company, it would be Google?  It's interesting that Pabrai dumped Posco and bought Google. 

 

Prospects between the two are almost night and day.

Thanks txlaw for the input from the meeting!

 

Some folks reported on this blog before that Munger said he thinks pabrai is the best expert investor in metals area so perhaps they had some discussions and decided to sour on posco at the same time. I am also curious about Guy's standing on this one; especially after presenting posco in one of the value investment conferences last year...

[karthikpm]

Alex Bossert had some valuation work on Posco. 

 

Any new insights or  change in your thesis ,Alex?

[sleepydragon]

I was at the Daily Journal meeting yesterday. 

 

Sounded to me like Munger has just soured on POSCO and the steel industry, generally.  He basically said that POSCO is still the most efficient steel company in the world with technology that nobody else has -- but that the effects of commoditization in the steel industry have been pretty negative for the company. 

 

So it does seem unlikely that there was any sort of shift from the ADRs to the Korean listed stock.

 

That is a risk, very well known risk for Posco's margins.  Did he also mention that if he had to choose a tech company, it would be Google?  It's interesting that Pabrai dumped Posco and bought Google. 

 

Prospects between the two are almost night and day.

Thanks txlaw for the input from the meeting!

 

Some folks reported on this blog before that Munger said he thinks pabrai is the best expert investor in metals area so perhaps they had some discussions and decided to sour on posco at the same time. I am also curious about Guy's standing on this one; especially after presenting posco in one of the value investment conferences last year...

 

I think Guy sold too. I think I checked 13F, not sure though.

and I suspect Berkshire could sold too. No trace of it in 10K, although the holding must have dropped below $1billion

I still holding the stock, lucky not a big position. But I lost too much percentage wise on this stock in such a short period of time I am having problem to take my lost..

I think steel price in China is recovering, and cost is coming down due to oil and iron ore is lower. So profit shall get better.

But i am not sure how strong dollar is effecting PKX.

Also, Ford is not stop using steel for their F1 trucks...