alwaysinvert Posted September 9, 2014 Share Posted September 9, 2014 Guy Spier is currently speaking at the Value Investing Congress and mentioned Posco. Berkshire, Munger, Pabrai and Spier all own Posco so I thought I'd attach my report for those interested. Alex Nice one. Cheers. Link to comment Share on other sites More sharing options...
Guest 50centdollars Posted September 9, 2014 Share Posted September 9, 2014 Guy Spier is currently speaking at the Value Investing Congress and mentioned Posco. Berkshire, Munger, Pabrai and Spier all own Posco so I thought I'd attach my report for those interested. Alex Anyone hear Guy Gottfried speak? Link to comment Share on other sites More sharing options...
cubsfan Posted September 9, 2014 Share Posted September 9, 2014 Guy Spier is currently speaking at the Value Investing Congress and mentioned Posco. Berkshire, Munger, Pabrai and Spier all own Posco so I thought I'd attach my report for those interested. Alex Anyone hear Guy Gottfried speak? Guy spoke yesterday. Link to comment Share on other sites More sharing options...
alwaysinvert Posted September 9, 2014 Share Posted September 9, 2014 Valuewalk piece on Guy's presentation: Guy Spier’s Investment Idea – POSCO Where to source ideas: came across POSCO (ADR) (NYSE:PKX) in Manual of Ideas. Then ran into a 13F filing from Charlie Munger (5% holding), then read a discussion on Corner of Berkshire & Fairfax, then read a write-up from SZ. The genesis of an idea. Overcapacity in the steel industry has led to declining margins for producers. POSCO (ADR) (NYSE:PKX) is known as lowest cost producer. The play centers on margins reverting back to the mean over the long run. The company has been repurchasing shares. Simple rationale that can be easily explained on half a sheet of paper. Other reasons it is attractive: India investment, new CEO (used to be a government controlled organization), divestment of non-core businesses which had been acquired over the years. Admits he “did not buy enough” wanted a full 10% position. Stock is up 30% YTD. http://www.valuewalk.com/2014/09/guy-spier-education-value-investor/ 8) Link to comment Share on other sites More sharing options...
augustabound Posted September 9, 2014 Share Posted September 9, 2014 Guy Spier’s Investment Idea – POSCO Where to source ideas: came across POSCO (ADR) (NYSE:PKX) in Manual of Ideas. Then ran into a 13F filing from Charlie Munger (5% holding), then read a discussion on Corner of Berkshire & Fairfax, then read a write-up from SZ. The genesis of an idea. Guy's a reader of the forum also. Link to comment Share on other sites More sharing options...
CorpRaider Posted September 9, 2014 Share Posted September 9, 2014 Neat, he seems like a good guy. Hope he posts too. Link to comment Share on other sites More sharing options...
ashish82 Posted September 10, 2014 Share Posted September 10, 2014 Guy Spier is currently speaking at the Value Investing Congress and mentioned Posco. Berkshire, Munger, Pabrai and Spier all own Posco so I thought I'd attach my report for those interested. Alex Alex, Good analysis. Quick question - why do you say DJCO initiated a position in Q4 2013. If I look at sec.gov, I see the first 13F filed for that period - so we don't know if he owned it prior to this. Am I missing something ? Link to comment Share on other sites More sharing options...
AJB96 Posted September 10, 2014 Share Posted September 10, 2014 ashish82, You are right. It looks like Munger likely initiated the position in the first quarter of 2009 (PKX traded between $50.17 and $78 during Q1 '09 )when he purchased two foreign manufacturers. The other being BYD. Then in the third quarter of 2012 he purchased additional shares of one of the two manufacturers. It's unclear if that it PKX or BYD. If it was Posco he would have bought between $75 and $85 per share. Alex Link to comment Share on other sites More sharing options...
DollarKing Posted September 25, 2014 Share Posted September 25, 2014 This is my first post on the board. With regards to the timing and price of DJCO purchase of PKX; This is taken directly from the 2012 annual report (page 17), hope it clears things up. 'In February 2009, the Company purchased shares of common stock of two Fortune 200 companies and certain bonds of a third, and during the second and third quarters of fiscal 2011, the Company bought shares of common stock of two foreign manufacturing companies. During the first quarter of fiscal 2012, the company bought shares of common stock of another Fortune 200 company. During the third and fourth quarters of fiscal 2012, the Company purchased additional shares of common stock of one of the foreign manufacturing companies in which it had previously invested.' (remembering that DJCO fiscal year ends September 30) Gareth Link to comment Share on other sites More sharing options...
portfolio14 Posted September 30, 2014 Share Posted September 30, 2014 Guy Spier summarised the investment thesis this way: "Overcapacity in the steel industry has led to declining margins for producers. POSCO (ADR) (NYSE:PKX) is known as lowest cost producer. The play centers on margins reverting back to the mean over the long run." http://www.valuewalk.com/2014/09/guy-spier-education-value-investor/ Could someone enlighten me, why Posco is a better investment than something like BHP which is a also low cost producer (of iron ore) and is also facing declining margins? If reverting to mean works for Posco, it should work for low-cost producers of other commodities? Are there something special about Posco? Link to comment Share on other sites More sharing options...
alwaysinvert Posted September 30, 2014 Share Posted September 30, 2014 Guy Spier summarised the investment thesis this way: "Overcapacity in the steel industry has led to declining margins for producers. POSCO (ADR) (NYSE:PKX) is known as lowest cost producer. The play centers on margins reverting back to the mean over the long run." http://www.valuewalk.com/2014/09/guy-spier-education-value-investor/ Could someone enlighten me, why Posco is a better investment than something like BHP which is a also low cost producer (of iron ore) and is also facing declining margins? If reverting to mean works for Posco, it should work for low-cost producers of other commodities? Are there something special about Posco? I may be wrong about this, but I think long-term mean margins for iron ore producers are still below where they are at now (for the majors). The mean reversion bit is necessary for the case but not sufficient. Everything Posco produces is not as much of a commodity as iron ore is. I'm not sure if it's the transcription or Spier's presentation that is wrong on this, but Posco haven't done any share repurchases in quite a while. They even sold some treasury stock last year. Reading Spier's book, I think he references Posco at one time. Pabrai emails him mentioining "an Asian stock that could be a 4x" and says to put the book writing on hold. I'm not quite sure how Pabrai got to as much as 4x, though :) I guess Spier got a chance to fill up on his position a bit these last few days, anyhow. Link to comment Share on other sites More sharing options...
portfolio14 Posted September 30, 2014 Share Posted September 30, 2014 Thanks alwaysinvert. There is no doubt Pabrai truly believes PXK is a multi-bagger with his 15-20% position. The task I've set for myself is to reverse-engineer his thesis. I guess this will be similar to Pabrai's bet on Frontline years ago. After thinking about it a bit more, I think I can answer my own question. Margins for high-quality steel products that PXK produces should only go up, while margins for iron ore still have a long way to fall when more mines are coming online. And as you said, steel products are not homogenous. Excessive capacities in China are not capable of producing high-end steels. There is a risk that is not mentioned anywhere. PXK has been forming partnerships in China, Indonesia and India. Sooner or later others will master their proprietary technologies. (Patent protection can only protect up to a limit.) That was how PXK learned from Nippon Steel and got to its current position in the first place. Of course we are talking about a time frame of multi-decades. But given that both Buffett and Munger like PXK and they always think in multi-decades, they don't see this will erode their long-term competitive advantage. I still don't know what to make of it. Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted September 30, 2014 Share Posted September 30, 2014 Thanks alwaysinvert. There is no doubt Pabrai truly believes PXK is a multi-bagger with his 15-20% position. The task I've set for myself is to reverse-engineer his thesis. I guess this will be similar to Pabrai's bet on Frontline years ago. After thinking about it a bit more, I think I can answer my own question. Margins for high-quality steel products that PXK produces should only go up, while margins for iron ore still have a long way to fall when more mines are coming online. And as you said, steel products are not homogenous. Excessive capacities in China are not capable of producing high-end steels. There is a risk that is not mentioned anywhere. PXK has been forming partnerships in China, Indonesia and India. Sooner or later others will master their proprietary technologies. (Patent protection can only protect up to a limit.) That was how PXK learned from Nippon Steel and got to its current position in the first place. Of course we are talking about a time frame of multi-decades. But given that both Buffett and Munger like PXK and they always think in multi-decades, they don't see this will erode their long-term competitive advantage. I still don't know what to make of it. It's one thing to have a culture to copy great techniques and inventions. It's an entirely different beast to create an environment where great techniques and inventions are made. I think along with it's competitive edge, Posco has a history of pushing the industry forward with its inovation and that can't be copied nearly as easily. Link to comment Share on other sites More sharing options...
portfolio14 Posted October 1, 2014 Share Posted October 1, 2014 It's one thing to have a culture to copy great techniques and inventions. It's an entirely different beast to create an environment where great techniques and inventions are made. I think along with it's competitive edge, Posco has a history of pushing the industry forward with its inovation and that can't be copied nearly as easily. We are in agreement here. But this doesn't mitigate the risk an innovator's competitive advantage is equalised away by its copiers. In the history of technologies there is a ceiling how much incremental improvement a technology can advance. Beyond that, it will be discrete jumps. In the context of PXK, those quantum jumps can be something like graphene, things that are completely outside PXK's core competence. That means the technological gap between PXK and its copiers will close gradually. Look at the flood of ultra cheap Android phones in China which can do 80% of what iPhone does. I reckon if US companies hadn't outsourced the manufacturing/assembly to Asia, US could've maintained the technological lead much longer. Link to comment Share on other sites More sharing options...
portfolio14 Posted October 1, 2014 Share Posted October 1, 2014 http://www.ft.com/intl/cms/s/0/7c671aac-4372-11e4-be3f-00144feabdc0.html?siteedition=intl "Aluminium threatens steel’s dominance of the car industry" Link to comment Share on other sites More sharing options...
Fat Pitch Posted October 1, 2014 Share Posted October 1, 2014 In the last 10 years the company invested 23 billion in excess of depreciation into capex and another 10 billion in acquisitions. During that time period, CFO decreased from 4.6 billion to 4.3 billion for 2013. This is a business that eats cash and gives you nothing in return. The upside is the industry rationalizes itself and POSCO is able to obtain their historic ~13% FCF margins and earns 30% of their current market cap each year. I guess this is a classic heads I win big, tails I don't lose much (opportunity cost). I'm just not convinced about the industry turning around... too much capacity laying around. Your competitors are countries wanting their own domestic steel production for national security purposes and they create lots of jobs. Link to comment Share on other sites More sharing options...
indirect Posted October 1, 2014 Share Posted October 1, 2014 A common mistake people make when they look at 13g of other investors is the presumption that the percentage stated or calculated is right. Foreign assets are not included nor does cash, as far as i know. Understanding limitations of the tools you are using is necessary. Link to comment Share on other sites More sharing options...
zenith Posted October 1, 2014 Share Posted October 1, 2014 http://www.ft.com/intl/cms/s/0/7c671aac-4372-11e4-be3f-00144feabdc0.html?siteedition=intl "Aluminium threatens steel’s dominance of the car industry" You may want to read this article as well and note the date. This is nothing new and this debate has been going on for decades. Lighter autos save energy, threaten steel's dominance http://news.google.com/newspapers?nid=2202&dat=19810128&id=CoJbAAAAIBAJ&sjid=ElENAAAAIBAJ&pg=4769,1816714 Link to comment Share on other sites More sharing options...
zenith Posted October 1, 2014 Share Posted October 1, 2014 A common mistake people make when they look at 13g of other investors is the presumption that the percentage stated or calculated is right. Foreign assets are not included nor does cash, as far as i know. Understanding limitations of the tools you are using is necessary. This is true as FIAT does not show on the 13F, nor the Indian stock basket he has. However having attended his AGM and read his annual reports, I can say that PKX is closer to 10 -12% of the portfolio. He could be adding more as we speak although and wont know until Nov 15th. Link to comment Share on other sites More sharing options...
alwaysinvert Posted October 1, 2014 Share Posted October 1, 2014 In the last 10 years the company invested 23 billion in excess of depreciation into capex and another 10 billion in acquisitions. During that time period, CFO decreased from 4.6 billion to 4.3 billion for 2013. This is a business that eats cash and gives you nothing in return. The upside is the industry rationalizes itself and POSCO is able to obtain their historic ~13% FCF margins and earns 30% of their current market cap each year. I guess this is a classic heads I win big, tails I don't lose much (opportunity cost). I'm just not convinced about the industry turning around... too much capacity laying around. Your competitors are countries wanting their own domestic steel production for national security purposes and they create lots of jobs. Per China, I think they have more than enough of steel capacity for military/industrial purposes and are rather starting to worry about environmental effects. Of course, employment is a huge factor as well, but insofar as they can start closing down mills and at the same time redeploy workers relatively well, they will do so, because it makes economic sense. This will probably be more feasible in China than in Europe and US, labor-wise. Link to comment Share on other sites More sharing options...
gjangal Posted October 1, 2014 Share Posted October 1, 2014 http://www.ey.com/Publication/vwLUAssets/EY_-_Global_steel_2014/$FILE/EY-Global-steel-2014.pdf I found this report useful if anyone needs a primer on the state of capacity, production, consumption and capacity utilization information on the steel industry. Most data is estimates for 2014. Link to comment Share on other sites More sharing options...
frommi Posted October 1, 2014 Share Posted October 1, 2014 Barrons post from August: Buffett's Posco Bet Paying Off http://online.barrons.com/news/articles/SB50001424127887324616904580099663395990850 Sinn expects Posco's earnings per share to grow 41.4%, to KW22,146 this year, and another 21.1% next year, to KW29,299. The Credit Suisse analyst's target for the stock is KW400,000, meaning he sees 21% upside. The shares trade at 13.3 times this year's expected earnings, or 0.6 times price to book, and have a 2.5% dividend yield. Adds Park: "I have covered the stock for 10 years and Posco has undergone a lot of pain in recent years, but it is finally looking like a turnaround story." That's just the way Buffett likes it. Link to comment Share on other sites More sharing options...
portfolio14 Posted October 1, 2014 Share Posted October 1, 2014 A common mistake people make when they look at 13g of other investors is the presumption that the percentage stated or calculated is right. Foreign assets are not included nor does cash, as far as i know. Understanding limitations of the tools you are using is necessary. Thanks for pointing this out. I did overlook this. Link to comment Share on other sites More sharing options...
zenith Posted October 2, 2014 Share Posted October 2, 2014 POSCO materials applied to Renault's ultralight EOLAB concept car http://english.yonhapnews.co.kr/business/2014/10/01/39/0501000000AEN20141001010300320F.html Link to comment Share on other sites More sharing options...
phil_Buffett Posted October 7, 2014 Share Posted October 7, 2014 hey guys, what does guy spier means with a write up from sz. who is this? does someone has the write up? thanks very much :) Phil edit: ok found out that he mean sum Zero write up. found it :) Link to comment Share on other sites More sharing options...
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