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In the 51st issue of Value Investor Digest we feature our interview with Ronald Chan, a collection of letters from Nick Sleep, an complimentary interview from Value Investor Insight, the latest podcast from the Money Maze; plus a fantastic offer with a free London Value Investor Conference ticket if you purchase the “Forgotten Forty” report from Boyar Research.
The issue also features 10 other articles, videos and letters from GMO, Charlie Munger, Howard Marks, Charles Heenan, Russell Napier, Beltrán Parages and many others.
“This is the twenty-fifth letter to investors over fourteen calendar years. In these letters we have tried to cover the philosophy and methodology Zak and I use to approach the problem of investing. We keep our discussions to as high a level as we can manage in the belief that, in the long run, the high level is all that matters. In these letters we have therefore discussed business models, incentive compensation, capital allocation, mistakes, more mistakes, even more mistakes, lots on psychology and how to think, lots on attitude and so on.”
“These days we are doing a lot more than just picking stocks but actually interacting with a lot of these names to unlock and create value on behalf of shareholders. There is an infrastructure conglomerate in Hong Kong called New World Strategic which is a subsidiary of New World Development…it is now trading at a 50% discount to NAV, pays over 9% dividend yield – but unfortunately it is in a lot of the businesses that you don’t want to be in right now…they have aircraft leasing, toll roads, logistics…However, last year the company made an investment in an insurance company and they are now in the process of getting a licence to sell insurance in the Greater Bay Area…the average insurance premium per capita in Hong Kong is around 7,000 USD but in the Greater Bay Area the insurance premium per capita is approximately 550 USD per capita.”
With thanks to our friends at the excellent publication Value Investor Insight we are delighted to be able to include a reprint of this excellent interview with Russell Napier. “I have a very clear idea of the massive thing that has just changed and is likely to impact the economy and financial markets for the next 20 to 30 years, and that’s the extent to which governments are offering credit guarantees to commercial banks. It sounds tedious, boring and uninteresting, but I think it’s transformational.”
“There have been huge booms and huge busts and that has been very interesting and of course the government has tried to do things that will dampen down the fluctuations and make recoveries from the busts happen faster…what has happened in the investment field is of course that so many people have gone in to it and people have made so much money and it is driven an almost frenzy of activity in the investment field – when I was young there was practically nobody in it and they weren’t very smart and now almost everybody is smart and a good proportion of them are sucked in to finance by the money. That has been a hugely important development. I don’t welcome it myself at all – I don’t think we want the whole world trying to get rich by outsmarting the rest of the world in marketable securities.”
The excellent Forgotten Forty which has now been published each year for over two decades consists of 40 one-page reports highlighting the investment thesis for each company. The reports focus on specific catalysts that Boyar Research believe could make each stock appreciate in value over the next 12 months. With thanks to our friends at Boyar Research you can get a complimentary report by signing up below plus if you choose to purchase the Fortgotten Forty, Boyar Research will purchase you a ticket to attend the London Value Investor Conference in 2021 or 2022.
“After a very difficult 2020, U.S. Value – as GMO defines it – now trades at the fourth percentile of relative valuation on the blend of metrics that we generally use to evaluate the group’s attractiveness. You might object that this is a non-standard definition of Value, and if cheap stocks were chosen using some other metric they might look less interesting. To address this concern, we can analyze how attractive the cheapest half of the U.S. looks when built on 11 different metrics, including GMO’s proprietary “P/Scale.”
“The government controls the supply of money and Boris’ 25 year mortgage he will now be offering through the banking system tells us that this is not a policy that is just for the coronavirus emergency or recovery – it is also morphing in to social justice and it can clearly morph in to loans for green initiatives as well. All of this creates money when it is done through the banking system. It is not fiscal policy it is monetary policy and the conclusion from that is that when the government controls the supply of money you’re going to get more inflation.”
“In our case, we deeply trust in the companies in which we are shareholders. Numbers are extraordinary and historically attractive even compared to those of 2009, which is an example of a past opportunity we have already come through. In Azvalor International’s portfolio, the companies are offering average returns over 15%, and therefore we believe the fund will tend to converge to those returns from the present moment (as it happened in 2009 and during the following 5 years).”
“Making predictions about financial markets is one of those activities that we perform in an indefatigable fashion in the face of overwhelming evidence that it is a hopeless endeavour; perhaps because it is in none of our interests to state that we just don’t know. We should never make our investment outcomes reliant on heroic forecasts.”
“The sheer pace of the move toward ESG and sustainable investment approaches means that it is often difficult to take time to reflect on some of the most pressing questions. I previously discussed 10 critical issues ESG investors must consider and, such is the scale and importance of the shift taking place, I now have ten more.”
“Let’s say you and I agreed that over the next five years every penny that went in to the US stock market would go in to an S&P index fund. What does that mean? That means over those 5 years the 500 stocks in the S&P would become massively expensive as they received all the cash flows, the other stocks in the market would become massively cheap because they were starved of capital, nobody was buying them. Eventually however, the non-S&P stocks would be so cheap relative to the S&P stocks that their outperformance would become compelling, at some point – we just don’t know where that inflection point is.”
“To buy something for less than it is worth is as useful as ever…many investors and market observers still unfortunately conflate value investing with the value factor. Value investing is buying something for less than it is worth. The value factor is an ersatz measure of gaps between price and value. Worse, the relevance of the value factor is fading. Earnings and book value no longer mean what they used to.”
“Today our investment philosophy is very simple and repeatable: we invest in quality-growth companies, we invest with conviction together with our clients at a reasonable price. Basically investing in the companies that can really ride through the different economic cycles. Companies that have consistent future earnings growth, generate free cash flows, companies that have very strong competitive advantages that are difficult to replicate and companies that have honest and reliable management teams.”
“Policy-driven demand is going to create a capex cycle that is bigger than the BRICS in the 2000s, not quite as big as the ’70s, but we’re talking about that kind of a bull market in commodities.”
© Value Invest 2021
