Relatively clueless weekend articles by the Wall Street Journal. This one, ‘Preparing for the next Black Swan’, is downright scary in the number of supposedly “heads I win, tail you lose” hedging/ ‘black swan-proof’ strategies currently pushed to customers – increasingly retail customers on top of the institutional ones. To be clear: we’re all for capital preservation, and our company’s success is built more on the back of risk aversion than of risk-taking. However, the article doesn’t do nearly enough to highlight that hedging instruments or strategies, especially untested ones, have not only flaws (have we already forgotten counter-party risk in 2008?) but most importantly costs, sometimes hidden, and in no way are these costs of a fixed nature. This has all the tell-tale signs of a fad…
Mr. Druckenmiller has over 30 years’ experience, his Duquesne Capital manages $12 billion and since 1986 never had a down year (although it is down 5% YTD). He worked with George Soros (while still managing Duquesne!) and was there for the famous British pound trade. So why quit? Interestingly, he’s “frustrated by his failure in the past three years to match returns that had averaged 30 percent annually since 1986.” Why, in his opinion, did it happen? “Managing more than $10 billion seems to challenge my long-term standard for investment performance.” A fund manager’s mandate is all about investment performance and not AUM growth – the opposite is not just wrong, it can also be self-defeating.
Economies, in the plural, since two recent articles have dealt with the “unofficial” sides of the Chinese Economy. First there was a Bloomberg article on Chinese banks getting the order to move their off-balance sheet stuff to the books. It makes us wonder who still trusts short-term bank earnings in China. We suggest a “translation” to the funny part inside, along with the second article, a LEX on China’s “grey” economy, mentioning research by Credit Suisse. In it CS researches China’s “real” wealth distribution, and surprise surprise, it looks more like South than North America. Why? Because incomes may be as much as 90% higher than official stats. Would the real China please stand up?
The 1st one regards AB-InBev and the fact that it’s still hard for “foreigners” to fully grasp it. Yesterday’s LEX column on the company has flattering but less than enlightened comments and puts way too much weight on the P/E ratio. The 2nd one is about Netflix, and this NYT story sheds some (more) light on the company. It’s about creative destruction stimulated by the company itself. It doesn’t guarantee Netflix will win as the technology shifts continually challenge its business model, but it gives the company a fighting chance. Again, such a shifting business model is probably not the best playground for investors, but Netflix is still worth tracking for all the other reasons.
In a first of what we hope to be many article collections about investors we keep track of, this one is about Glenn Greenberg of Brave Warriors Capital. He’s better know as the co-founder of Chieftain Capital, but in the end of 2009 him and John Shapiro parted ways (Mr. Shapiro and two other partners left but retained the name Chieftain Capital). Being the first to be profiled in this series isn’t a matter of order of preference at all.
Zynga keeps popping up on the news as it reportedly heads for an IPO, and one piece asked if it can become the Google of online games. Sure, the business model seems fantastic – precisely what usually attracts competitors. So far they have suffered and didn’t really appear to threaten Zynga. Now Disney is making a move and it’s easy to imagine other players joining the battle. Plus, thinking about games reminded us of Electronic Arts.
We haven’t come to this classic by accident: the subject of inflation has been all over major magazines and newspapers recently. Warren Buffett pretty much defined the subject in his classic, 1977 article for Fortune Magazine called “How Inflation Swindles the Equity Investor”. It’s a must-read for any investor, preparation material for a number of finance programs around the world, and all-around common-sense knowledge that most people need.
Read more about Classic articles, vol. 3 – Inflation and equity prices
The text inside did not appear in our Q2 2010 report in English, but we’ve brought it to Buysiders. It’s about “visibility” in the markets: do investors really alternate between periods of “excellent” and “very poor” visibility or is that just an illusion? We choose the latter. As Warren Buffett says, “Forecasts usually tell us more of the forecaster than of the future”.
Read more about IP report excerpts, vol.7, part 1: on visibility
Many analogies with investing in this Slate post about a mountaineer’s worst mistakes. Quoting from the introduction: “(…) I was curious about the kind of attitude you develop toward error when a single mistake can easily cost you your life. I also wanted to test a hypothesis that I call “the paradox of error”: If your goal is to avoid making mistakes, then you must constantly assume that you are about to make one. That’s why fields like aviation and medicine have, at their best, a productive obsession with error.”
GP Investments’ Antonio Bonchristiano and Fersen Lambranho gave an interview for Valor Economico (in Portuguese) that should be pretty interesting for those interested in Private Equity in Brazil – not the least because it’s above-average in terms of frankness.
