What are you buying today?

[cubsfan]

Thank you Read, that is very kind of you. Investing analysis and developing keen business insights is difficult

enough - when you couple it with dishonest management - it becomes really treacherous.

 

Having spent years in the software business with extremely promotional management who felt there job

was to pump the stock - and be damn the investors - I should have know better.

 

Sometimes, you can ask all the right questions - and it just won't matter, depending on the character

of management with which you are dealing.

 

Seems every few years - I need to be truly humbled by the investing process - and I am.

 

But you are correct - learn and don't repeat, as you refine your process. Excellent advice Read.

[Spekulatius]

I second what Read the footnotes stated. My impression is that Metro’s management lacked the ability ( to exactly understand the rules governing banking in the UK) and were not necessarily dishonest, but I could be wrong.

 

I haven’t followed this story too closely however.

[Read the Footnotes]

I second what Read the footnotes stated. My impression is that Metro’s management lacked the ability ( to exactly understand the rules governing banking in the UK) and were not necessarily dishonest, but I could be wrong.

 

I haven’t followed this story too closely however.

 

Good point. I too am ignorant on the specifics. I didn't mean to impugn Metro Bank management, but to respond to Cubsfan's comments and assessments as I understood them.

 

Falling victim to a charlatan is the worst case scenario that we all are trying to avoid, but there are many lessor risks in evaluating manager skill and honesty.

[Spekulatius]

I second what Read the footnotes stated. My impression is that Metro’s management lacked the ability ( to exactly understand the rules governing banking in the UK) and were not necessarily dishonest, but I could be wrong.

 

I haven’t followed this story too closely however.

 

Good point. I too am ignorant on the specifics. I didn't mean to impugn Metro Bank management, but to respond to Cubsfan's comments and assessments as I understood them.

 

Falling victim to a charlatan is the worst case scenario that we all are trying to avoid, but there are many lessor risks in evaluating manager skill and honesty.

 

One heuristic I developed (in a costly manner) was to always sell any financial stock that has a run in or problem with a regulator. I have several experiences with these issues and one I remember vividly was that AIG in one of their filings around September 2008 noted a disagreement about valuation with their auditor , as I recall. I thought about this for a while, my position was already in the hole at that time. I decided to sell, because I thought if their management can’t agree with their auditor about valuation of some assets, who am I to value this stock? It turned to be the correct decision. I had several other experiences like that with banks and none of them would have worked out.

 

It’s a bit different with Industrials or non-financials, but with financial the rule to to sell first is probably right in the vast majority of the cases.

[cubsfan]

Well - that's a very good rule - one I should have adopted. Metro seemed like a simple bank model,

just basic banking, seemingly nothing messy. Your point about them not understanding the UK rules is a

good one.

 

As to the integrity issue, this leadership team has little credibility left after the way they handled

investor communication. I'll let others try and separate the surprises from the lies.

[cameronfen]

Well - that's a very good rule - one I should have adopted. Metro seemed like a simple bank model,

just basic banking, seemingly nothing messy. Your point about them not understanding the UK rules is a

good one.

 

As to the integrity issue, this leadership team has little credibility left after the way they handled

investor communication. I'll let others try and separate the surprises from the lies.

 

I dont mean to denigrate you when you were brave enough to admit your mistake and BAC was my first stock purchase so I obviously changed philosophy.  However, I've recently been thinking as a retail investor, the average old school financial company (basically banks and insurance) and are not worth the effort.  Sure as a value investor you have an easy rule: buy when price to book goes under 1.  But this simple rule hides the fact that these companies have low to middling ROE, are horrendously complicated, and unlike other companies, growth is as often bad as good (taking on assets no one else wants).  Leave it to the guys with 1 billion in assets and resources to get the 10-12% IRR you probably get with the average basket of undervalued banks and insurance comapanies.  Maybe a Quant strat of buying every bank under .75 of TBV, but if one is going to spend time learning an industry, there are easier fruits to pick in my mind. 

 

I dont know maybe other people have better luck with these things and I dont know what I'm talking about.  Just something that occurred to me as a thought that was worth putting down at least for my sake. 

[Sunrider]

I second what Read the footnotes stated. My impression is that Metro’s management lacked the ability ( to exactly understand the rules governing banking in the UK) and were not necessarily dishonest, but I could be wrong.

 

I haven’t followed this story too closely however.

 

Good point. I too am ignorant on the specifics. I didn't mean to impugn Metro Bank management, but to respond to Cubsfan's comments and assessments as I understood them.

 

Falling victim to a charlatan is the worst case scenario that we all are trying to avoid, but there are many lessor risks in evaluating manager skill and honesty.

 

Well you can and should impugn them - getting risk weightings on mortgages wrong is kinda difficult unless you’re either (i) incompetent or (ii) trying to do it deliberately. Calculating RWA is one of the most basic things in banking ...

[EricSchleien]

I second what Read the footnotes stated. My impression is that Metro’s management lacked the ability ( to exactly understand the rules governing banking in the UK) and were not necessarily dishonest, but I could be wrong.

 

I haven’t followed this story too closely however.

 

Good point. I too am ignorant on the specifics. I didn't mean to impugn Metro Bank management, but to respond to Cubsfan's comments and assessments as I understood them.

 

 

 

Falling victim to a charlatan is the worst case scenario that we all are trying to avoid, but there are many lessor risks in evaluating manager skill and honesty.

 

One heuristic I developed (in a costly manner) was to always sell any financial stock that has a run in or problem with a regulator. I have several experiences with these issues and one I remember vividly was that AIG in one of their filings around September 2008 noted a disagreement about valuation with their auditor , as I recall. I thought about this for a while, my position was already in the hole at that time. I decided to sell, because I thought if their management can’t agree with their auditor about valuation of some assets, who am I to value this stock? It turned to be the correct decision. I had several other experiences like that with banks and none of them would have worked out.

 

It’s a bit different with Industrials or non-financials, but with financial the rule to to sell first is probably right in the vast majority of the cases.

 

^^ 100%

[rb]

Banks can actually be great investments and very profitable companies. But I've kinda figured out that dumpster diving doesn't work with financial institutions. If you're gonna dumpster dive you're just gonna get garbage. Best way to do it is to get good stuff when the stock prices are lower due to market fluctuations.

[schin]

I have been investing in banks for a while and management does matter. For MetroBank, they were trading at some insane multiple of book value (2-3x BV). Most banks should be trading at 1x BV... Even great banks/franchises like JPM and GS are trading at 1x BV or at best, 1.5x BV.... again, you are getting best in breed talent in Jamie Dimon and L. Blankfein (back then) and still only pay 1-1.25x BV.

 

I would say Berkshire as an insurance company adheres to that law. He is looking at buybacks not at 2x book, but 1.1x BV....

 

So, for BRK, JPM, GS trading at 1x... Metro at 2x BV should be an indicator that scares one off.

 

I tell my friends Mercedes and Lexuses are great cars, but you can overpay for them. For banks, FMV is generally 1x BV -- less, you are getting a margin of safety. More, you're getting priced to perfection.

 

Of course, CET1 is important and if you can't calculate RWA or being overly aggressive with that, then all bet are off....

 

But, I cringe when I hear "growth story" and banks in the same sentence. It's a 300+ year old industry and it's a mature industry with sprinkles of technology here and there...  But, it is fairly stable.  Community banks can pop up or credit unions can be started, but they cannot scale... so, new banks in general should not be able to scale rapidly. They can scale through acquisition like BB&T and Suntrust, but growing branch networks organically and scaled big is not something you see often.  It's against the laws of physics.

 

Full disclosure - I am invested in several European banks which are trading at below TBV... and of course, I wish I could ask them to run off and distribute their TBV.. that would be ideal,  But, BNP, HSBC, Commerzbank, SocGen, DB are very interesting buys... all below TBV right now.... I am not talking about BV... Actually, below TBV...  Within the US, I don't see any banks trading below BV... even mini-community banks.... You can get large, G-SIB in Europe below that. This is a once in a lifetime opportunity.

 

Much like the GFC, where subprime doesn't look right. The valuations on European banks don't look right on the upside. I cannot imagine a world 5 years from now where BNP, HSBC, Commerzbank (merged or not merged), SocGen doesn't service the EU community.

[ourkid8]

TSU

[Lance]

Sold HSY and bought M.

 

 

Thanks

Lance

[LC]

Starter (small) position in RELX.

 

Used to own it and had liquidated it last year as a home down payment like the business, was looking for sub-20s re-entry but for a starter position this (~21.30) is OK to get comfortable again with the business.

[Spekulatius]

Added to FCAU and bought a starter in WBA

[Spekulatius]

The shift away from beer doesn't really bother me. Wine, liquor, beer. All have been around for centuries, I'm sure the pendulum has swung back and forth multiple times.

 

Wine and liquor don't create the tavern/pub atmosphere like beer does - there will always be a place for it.

 

I generally like the Coors brand. I think it has a unique value compared to say, Budweiser. This could be my Colorado bias, however.  ;D

 

Molson I think it the worst of the Canadian beers but it's like Budweiser - it's the mass market brand. I was at a Habs game and spent my $11 on a Molson or two, when I was last up there. There is something to be said about reliable, consistent, mediocrity :)

 

So it's basically as Liberty said:

So it's basically, multiple is low, they have scale, brands should have staying power.

 

Even if it's a bit of a melting ice cube, I think it's different from say, consumer technology brands. Something like Blackberry phones were essentially completely replaced - the ice cube totally melted. Here I think, the brands may have competition, but will not really be replaced. The worse-case scenario is that it takes longer to earn my money back. Lower risk of a permanent loss of capital, perhaps higher risk of a lower return on capital.

 

Interesting article on beer. I was surprised to see that even craft beer brewers are hurting. It’s a bear market for beer :o

https://www.ccn.com/millennials-killing-us-beer-next-victim-is-heineken

 

The trend to spirits is mentioned as well. Heineken is the Budweiser of Europe, imo. the stock looks pretty overvalued too, but I think they are better run than Ambev.

[Gregmal]

1810.HK

[benchmark]

1810.HK

 

Can you share you thoughts on this?

[Castanza]

The shift away from beer doesn't really bother me. Wine, liquor, beer. All have been around for centuries, I'm sure the pendulum has swung back and forth multiple times.

 

Wine and liquor don't create the tavern/pub atmosphere like beer does - there will always be a place for it.

 

I generally like the Coors brand. I think it has a unique value compared to say, Budweiser. This could be my Colorado bias, however.  ;D

 

Molson I think it the worst of the Canadian beers but it's like Budweiser - it's the mass market brand. I was at a Habs game and spent my $11 on a Molson or two, when I was last up there. There is something to be said about reliable, consistent, mediocrity :)

 

So it's basically as Liberty said:

So it's basically, multiple is low, they have scale, brands should have staying power.

 

Even if it's a bit of a melting ice cube, I think it's different from say, consumer technology brands. Something like Blackberry phones were essentially completely replaced - the ice cube totally melted. Here I think, the brands may have competition, but will not really be replaced. The worse-case scenario is that it takes longer to earn my money back. Lower risk of a permanent loss of capital, perhaps higher risk of a lower return on capital.

 

Interesting article on beer. I was surprised to see that even craft beer brewers are hurting. It’s a bear market for beer :o

https://www.ccn.com/millennials-killing-us-beer-next-victim-is-heineken

 

The trend to spirits is mentioned as well. Heineken is the Budweiser of Europe, imo. the stock looks pretty overvalued too, but I think they are better run than Ambev.

 

Personally I like Diaego better than any other alcohol related companies. They have a good diversification of product ranging from high end liquors to iconic and cult following beers like Guinness. It is trading at a premium for sure, and I doubt I would enter a position at this point. But it has performed much better than the competition out there. I think they do a good job of securing quality brands that consumers like. Liquor is for sure a "safer" bet it terms of the long game. Not many small craft liquor producers. Especially when it comes to stuff aged over 10 years. It's hard to replicate that.

 

 

[Gregmal]

1810.HK

 

Can you share you thoughts on this?

 

Personally, in terms of how I am positioning, I think as you get closer to a US/China deal, you are going to want to be less overweight US. I have been massively overweight, so I am in the process of reducing exposure. For a long time I have been seeking a good India play. Xiaomi is dominant in India and growing like a weed. In terms of the business, after looking into it further I believe it is largely unappreciated and not well understood. The core business IMO is not really the smartphones but the advertising and services. Lei Jun is an impressive fellow, and Shun Wei Capital(their investing arm) seems to be positioning for dominance in the IOT/AI markets. Where better to be than India/China with a free call option(eventually) on the US? To me, this has the potential to be a mini-Softbank/Tencent. Very long run way.

[Spekulatius]

I am betting on tequila via CUERVO.MX. Tequila is underpenetrated anywhere but in Mexico and the USA, imo. Supply constraints for Algarve hurt in the short term, but should benefit an integrated company like Becle ( CUERVO.MX) in the long run. Family business and a good balance sheet are additional positives. I think the most important attribute in spirits is brand building.

[LC]

Liquor is for sure a "safer" bet it terms of the long game. Not many small craft liquor producers. Especially when it comes to stuff aged over 10 years. It's hard to replicate that.

I wouldn't be too sure about that. Have you heard of MGP Ingredients:

 

https://www.cincinnatimagazine.com/high-spirits-blog/mgp-ingredients-lawrenceburg/

 

They are contract producers for small label US whiskeys. You want to make Castanza whiskey? Call em up and they can make it happen.

[LC]

WM...one man's garbage is another man's....

[Castanza]

Liquor is for sure a "safer" bet it terms of the long game. Not many small craft liquor producers. Especially when it comes to stuff aged over 10 years. It's hard to replicate that.

I wouldn't be too sure about that. Have you heard of MGP Ingredients:

 

https://www.cincinnatimagazine.com/high-spirits-blog/mgp-ingredients-lawrenceburg/

 

They are contract producers for small label US whiskeys. You want to make Castanza whiskey? Call em up and they can make it happen.

 

That's not exactly unique though. It's basically your own label on their whiskey. As mentioned in the article, the most important factor to good liquor is "time." It's difficult for small fry companies to sit on losses 10 years straight until their bourbon is aged. I'll admit, this seems like a relatively decent company with a decent client base. But from a marketing aspect I can't help but see the shortcomings. It doesn't feel as local as craft beer which are generally brewed on site. Therefore I think the "time" element is the largest barrier to entry in this market.

 

But like I said. I'm not vested in any "beverages." And this article is a good example of why. I don't understand the market well enough. Too much regulation exists in it for me to find it interesting and lastly who knows what consumer trends will be once the boomers die off (no offense to the boomers). Do millennials have enough money for expensive liquor? All i remember from my college days is Kamchatka vodka and Early Times whiskey.

[bskptkl]

LLY, not too much though.

[benchmark]

1810.HK

 

Can you share you thoughts on this?

 

Personally, in terms of how I am positioning, I think as you get closer to a US/China deal, you are going to want to be less overweight US. I have been massively overweight, so I am in the process of reducing exposure. For a long time I have been seeking a good India play. Xiaomi is dominant in India and growing like a weed. In terms of the business, after looking into it further I believe it is largely unappreciated and not well understood. The core business IMO is not really the smartphones but the advertising and services. Lei Jun is an impressive fellow, and Shun Wei Capital(their investing arm) seems to be positioning for dominance in the IOT/AI markets. Where better to be than India/China with a free call option(eventually) on the US? To me, this has the potential to be a mini-Softbank/Tencent. Very long run way.

 

I mostly agree that india/china will be growing faster than US. Xiaomi's growth in india seems to be driven mostly by its cheap phone -- but i don't know if that's a sustainable advantage. In china, it's proven that price war is very hard to win.