The sheer scale of the 2008 market plunge has outperformed all expectation. How much lower can things go ? When are we going to get to the bottom and over with the current crisis ? Re-wind back to the summer of 2007. All we heard of then was the US subprime mortgage crisis. Later in 2007 - early 2008 the credit crunch became the buzzword. Now we have a full-blown global financial crisis leaving major casualties of Lehman Bros, Wachovia, Bear Stearns and numerous others in its wake.
As of today the US and Britain both have now committed close to $2 trillion of public funds to rescue their banking sectors. In a historical context, we are probably seeing the most serious, co-ordinated financial commitments made in reaction to peacetime events by both Washington and London since the second world war.
Despite these laudable interventions by governments and Central Banks' rate cuts some I can see further inevitable bank failures in the coming months across both sides of the Atlantic. Without much randomness, many more billions shall be lost.
Fast forward to 2009.
- BRIC economic crisis as the OECD and G8 economies slows.
- More notably, China's overheating economy slows down. Oil price dips concretely below $75
....Then follows the definitive crash in oil and commodity stocks...
- Further Russian stocks slide and possible political instability in Russia due to huge resource revenue losses.
Which industry will break down and be nationalised next in the US ? We will know in 5 weeks the person (Obama or McCain ?) to handle the ensuing political fallout of the mess and its global ramifications ?
Overall, the overbearing feeling of bearishness still persists.
So what should a value investor do ? My advice :
1. Take time out of the equation. This simply means taking the long-term view.
2. Hold on to quality. Look for those companies that have existed for over a 100years and outlived the major crisis (the Great Depression, WWII and the post-war recessions of the past 50yrs). In fact they have consistently paid dividends over these periods. Because they are run by smart and honest managers who recognise the need to manage risk, they remain competitive, keep debt levels low and maintain loads of cash on their balance sheets. In fact they are looking at making acquisitions right now and are still able to pay dividends. They continue to attract many generations of shareholders.
3. Re-invest your dividends (even if it's been cut in half). This is the secret of long-term compounding of investment value.
4. Do not log on to view your portfolio everyday.
5. Be calm and bold about any losses. Write down the assets that need to be WRITTEN DOWN. Tell your brain that they are written down for now, but not WRITTEN-OFF.
Be at peace and Sleep well at night. This one too shall pass...
Wednesday, October 8, 2008
Thursday, July 17, 2008
Interesting interview with value/hedge-fund manager Seth Klarman
Seth Klarman-->
"We're not the stereotypical hedge fund in terms of an idea a minute. We come in with a view that a security is trading for less than it’s worth, and we buy it."
http://www.iimagazine.com/Article.aspx?ArticleID=1962261
"We're not the stereotypical hedge fund in terms of an idea a minute. We come in with a view that a security is trading for less than it’s worth, and we buy it."
http://www.iimagazine.com/Article.aspx?ArticleID=1962261
Friday, July 11, 2008
it's good to talk
Let's talk about world population: Of the 16 countries in the world that have a populations of 75 million or more, 3 qualify for the title of developed countries. The other 13 are still "developing" basic infrastructure like telecoms
Let's talk about growth: Of the big developed 3, the US has the highest population growth rate of just under 1%. Japan is flat and Germany has a negative population growth number*.
Let's talk about "the other 13": The other 13 countries account for 59% of the world population and all with the exception of Russia have population growth rates higher than 1% per annum*. Nigeria leads this pack with a growth 2.38% per annum* and the 8th largest population in the world.
Let's talk Nigeria: I am a Nigerian and a student of the Peter Lynch school of investing: "Buy what you know". 6 years ago that was really hard as very few of the fortune 500 companies had a substantial presence in Nigeria that tapped into the population's buying power. The only visible foreign consumer-oriented companies were the mobile phone operators
Let's talk mobile phones: GSM technology came to Nigeria in 2001 and MTN was one of the pioneer providers. In the first year of operation, 10% of MTN's ZAR12M revenue came from its Nigerian operations and ZAR7.5 got you US$1. Today, MTN has a presence in over 20 developing countries, the revenue has grown to ZAR58M with 34% of that coming from Nigeria and the currency has stayed fairly steady with ZAR7.7 getting you US$1 at today's rates. Fact is over 100 million Nigerias appreciate the chance to talk & MTN has the money in the bank to prove it.
Let's talk hedging: The uncertainties of the 1st world markets in the last one year has left many an investor weeping. House prices are crashing and consumer confidence is falling... but not in the third world. In China over 1,000M people are talking and China Mobile is helping them. In India over 1,000M people are talking and Reliance Communications is helping them. Over 100M people in Mexico & Nigeria are talking thanks to American Movil & MTN. Fact is the finances of a telecommunications company that is willing to provide services to any of the over $4 billion consumers in the third world is insulated from the global crisis today. It a great hedge against the emotions of the US consumer & the strength of the dollar.
Let's talk diversification: Buying the shares of the different telecoms companies listed above is contrary to Mr Lynch's common sense. Buying into a fund that's invested in these companies, trading at 12% discount to asset value and up 50% from its July 2006 value where the S & P is flat? That's a move Mr Lynch may be proud of. The Emerging Markets Telecommunications Fund (ETF) has done all these. Just as the name says, its a fund that invests in the stock of emerging markets telecoms companies.
Recent conventional wisdom advocates investing in the emerging markets by buying funds that track the MSCI Emerging Market Index. Being from an "emerging market" country, I think differently. A lot of the companies listed on the index are in the natural resources industry and cannot fully tap into the power of a large population, but the telecomms companies can and the ETF is a painless (more volatile, more familiar & more rewarding) alternative for the long-term value investor in me.
Let's talk about me: This is my first post on this blog and I wanted to do a SHORT writeup on why I think investing in the Emerging Markets Telecommunications Fund (ETF) has been a good thing for my portfolio. I've tried to be brief but I have the feeling that this is one of the longer posts on this blog & I apologise. It must be the Nigerian in me. Now you see why MTN Nigeria will always turn a profit. We love to talk!
* CIA world fact book
Let's talk about growth: Of the big developed 3, the US has the highest population growth rate of just under 1%. Japan is flat and Germany has a negative population growth number*.
Let's talk about "the other 13": The other 13 countries account for 59% of the world population and all with the exception of Russia have population growth rates higher than 1% per annum*. Nigeria leads this pack with a growth 2.38% per annum* and the 8th largest population in the world.
Let's talk Nigeria: I am a Nigerian and a student of the Peter Lynch school of investing: "Buy what you know". 6 years ago that was really hard as very few of the fortune 500 companies had a substantial presence in Nigeria that tapped into the population's buying power. The only visible foreign consumer-oriented companies were the mobile phone operators
Let's talk mobile phones: GSM technology came to Nigeria in 2001 and MTN was one of the pioneer providers. In the first year of operation, 10% of MTN's ZAR12M revenue came from its Nigerian operations and ZAR7.5 got you US$1. Today, MTN has a presence in over 20 developing countries, the revenue has grown to ZAR58M with 34% of that coming from Nigeria and the currency has stayed fairly steady with ZAR7.7 getting you US$1 at today's rates. Fact is over 100 million Nigerias appreciate the chance to talk & MTN has the money in the bank to prove it.
Let's talk hedging: The uncertainties of the 1st world markets in the last one year has left many an investor weeping. House prices are crashing and consumer confidence is falling... but not in the third world. In China over 1,000M people are talking and China Mobile is helping them. In India over 1,000M people are talking and Reliance Communications is helping them. Over 100M people in Mexico & Nigeria are talking thanks to American Movil & MTN. Fact is the finances of a telecommunications company that is willing to provide services to any of the over $4 billion consumers in the third world is insulated from the global crisis today. It a great hedge against the emotions of the US consumer & the strength of the dollar.
Let's talk diversification: Buying the shares of the different telecoms companies listed above is contrary to Mr Lynch's common sense. Buying into a fund that's invested in these companies, trading at 12% discount to asset value and up 50% from its July 2006 value where the S & P is flat? That's a move Mr Lynch may be proud of. The Emerging Markets Telecommunications Fund (ETF) has done all these. Just as the name says, its a fund that invests in the stock of emerging markets telecoms companies.
Recent conventional wisdom advocates investing in the emerging markets by buying funds that track the MSCI Emerging Market Index. Being from an "emerging market" country, I think differently. A lot of the companies listed on the index are in the natural resources industry and cannot fully tap into the power of a large population, but the telecomms companies can and the ETF is a painless (more volatile, more familiar & more rewarding) alternative for the long-term value investor in me.
Let's talk about me: This is my first post on this blog and I wanted to do a SHORT writeup on why I think investing in the Emerging Markets Telecommunications Fund (ETF) has been a good thing for my portfolio. I've tried to be brief but I have the feeling that this is one of the longer posts on this blog & I apologise. It must be the Nigerian in me. Now you see why MTN Nigeria will always turn a profit. We love to talk!
* CIA world fact book
Tuesday, July 8, 2008
Coke… & Beer
As I go back to our records, we intended to buy Anheuser-Busch (BUD) in July 21st 2006, at $ 46.81. We did not do so and we expect the situation to get much different now, if InBev’s bid will be accepted. InBev stock is traded at approx $41 now, so we might have a second chance.
The merger will open chances for the future of both businesses, creating a huge synergy (for example through A-B’s 24% market share on China market).
InBev will make a good buy, considered the strength of EU-market, compared to US-market. However the cultural differences will make the deal difficult and can be seen as a risk factor – family traditions, US-habits, Icon status of Budweiser, employees who do not accept cost cuttings.
Whatever the price of a beer will be in the following years – considered higher price of fuel, transportation, shipping costs, electricity, water - it will be still affordable, compared to the other alcoholic drinks.
So, we maybe concentrate on Coke and beer?
Summary from:
BRUSSELS, July 8 (From: Reuters)
As per: http://www.guardian.co.uk/business/feedarticle/7637222
InBev:
- Cost Cutting: to squeeze out up to $1.4 billion of costs if it succeeds in taking over U.S. peer Anheuser-Busch.
- Budgeting: "Zero-based budgeting" is central to InBev's business model (= to justify all spending, rather than just changes in their budgets)
- Regions: Brazil, North America, Western Europe, Eastern Europe, Asia
- Employees: the tightest of budget controls: mobile phones taken back and returned only to employees who justified a need for one; new pens given out only in return for used ones; and an elevator at the global headquarters closed for several months.
- CEO Carlos Brito: plans to cut costs by 10-15 percent in year one, 5-10 percent in the second year and enough to offset inflation in the third. In the first year in key home market western Europe, InBev laid out restrictions on 15 areas from travel to utilities that reaped 118 million euros ($186.3 million) of savings.
- Offer: $46.3 billion takeover offer
- Vision: boosting revenues by making Anheuser's Budweiser a flagship global brand beside its stable of Beck's, Stella Artois and Brahma - by adding Anheuser's near 50 percent share of the profitable U.S. market to InBev's global empire.
- More savings: downgrading Anheuser's corporate HQ to a North American head office, shifting Budweiser production in Britain to InBev plants, rationalising Chinese operations and boosting U.S. sales of AmBev brands and Bud volumes in Canada
- Marketing: $100 million cost of sponsoring soccer's World Cup tournament – it is in South Africa in 2010 (where Budweiser is not present).
- Distributors: to lean on them to consolidate and become more efficient.
- Bid: potential risk for the take-over to become hostile (massive culture clash & ZBB cost philosophy is difficult to implement without willingness from the workforce)
A-B’s future after take-over:
- Cost cutting: $1 billion of cost cuts, principally the result of reducing the workforce by between 10 and 15 percent by 2010 and speeding up price hikes.
- Core competence: Anheuser's packaging business and SeaWorld and Busch Gardens theme parks would also almost certainly go.
- Image of US Icon: all Anheuser's U.S. breweries will be kept open (said InBev), but it could be eyeing more job cuts than Anheuser now plans.
-
Trevor Stirling, analyst at Sanford Bernstein, believes such changes could yield $380 million in annual synergies.
As I go back to our records, we intended to buy Anheuser-Busch (BUD) in July 21st 2006, at $ 46.81. We did not do so and we expect the situation to get much different now, if InBev’s bid will be accepted. InBev stock is traded at approx $41 now, so we might have a second chance.
The merger will open chances for the future of both businesses, creating a huge synergy (for example through A-B’s 24% market share on China market).
InBev will make a good buy, considered the strength of EU-market, compared to US-market. However the cultural differences will make the deal difficult and can be seen as a risk factor – family traditions, US-habits, Icon status of Budweiser, employees who do not accept cost cuttings.
Whatever the price of a beer will be in the following years – considered higher price of fuel, transportation, shipping costs, electricity, water - it will be still affordable, compared to the other alcoholic drinks.
So, we maybe concentrate on Coke and beer?
Summary from:
BRUSSELS, July 8 (From: Reuters)
As per: http://www.guardian.co.uk/business/feedarticle/7637222
InBev:
- Cost Cutting: to squeeze out up to $1.4 billion of costs if it succeeds in taking over U.S. peer Anheuser-Busch.
- Budgeting: "Zero-based budgeting" is central to InBev's business model (= to justify all spending, rather than just changes in their budgets)
- Regions: Brazil, North America, Western Europe, Eastern Europe, Asia
- Employees: the tightest of budget controls: mobile phones taken back and returned only to employees who justified a need for one; new pens given out only in return for used ones; and an elevator at the global headquarters closed for several months.
- CEO Carlos Brito: plans to cut costs by 10-15 percent in year one, 5-10 percent in the second year and enough to offset inflation in the third. In the first year in key home market western Europe, InBev laid out restrictions on 15 areas from travel to utilities that reaped 118 million euros ($186.3 million) of savings.
- Offer: $46.3 billion takeover offer
- Vision: boosting revenues by making Anheuser's Budweiser a flagship global brand beside its stable of Beck's, Stella Artois and Brahma - by adding Anheuser's near 50 percent share of the profitable U.S. market to InBev's global empire.
- More savings: downgrading Anheuser's corporate HQ to a North American head office, shifting Budweiser production in Britain to InBev plants, rationalising Chinese operations and boosting U.S. sales of AmBev brands and Bud volumes in Canada
- Marketing: $100 million cost of sponsoring soccer's World Cup tournament – it is in South Africa in 2010 (where Budweiser is not present).
- Distributors: to lean on them to consolidate and become more efficient.
- Bid: potential risk for the take-over to become hostile (massive culture clash & ZBB cost philosophy is difficult to implement without willingness from the workforce)
A-B’s future after take-over:
- Cost cutting: $1 billion of cost cuts, principally the result of reducing the workforce by between 10 and 15 percent by 2010 and speeding up price hikes.
- Core competence: Anheuser's packaging business and SeaWorld and Busch Gardens theme parks would also almost certainly go.
- Image of US Icon: all Anheuser's U.S. breweries will be kept open (said InBev), but it could be eyeing more job cuts than Anheuser now plans.
-
Trevor Stirling, analyst at Sanford Bernstein, believes such changes could yield $380 million in annual synergies.
Thursday, July 3, 2008
Welcome to the 2008 - ? Bear Market !
The Dow has now retraced a full 20% since October 2007 highs signalling officially that we are in a bear market.
Oil prices at $140 do not help matters. The credit crunch is not over yet and the housing crisis has now spread fully from the US to the UK. Consumer confidence at an all-time low. Equities will be further buffetted in coming months by the real risk of increasing interest rates and inflation worries which raises serious concerns about corporate earnings outlook. So we can forget about any appreciable GDP growth, especially in the OECD economies.
I do not expect any meaningful recovery until next summer. The result of the US presidential election will have an impact - will the new president support Israel attacking Iran ? Will the White House become more constructive in relations with the rest of the world and especially OPEC countries Iran, Venezuela so that more oil can be pumped into the market to ease supply worries ?
So What should the value investor do ?
My answer is this : We should hold on to our stocks.
Go to "sleep" mode and assume that the market is closed for the next 5 years.
If you have some cash pick up some Starbucks, Bank of America, General Electric, Cisco, Microsoft, Coca-Cola, Gannettt, JP Morgan, Berkshire Hathaway, GlaxoSmithKline - all trading in bargain territory.
Also Look at exchange-traded funds SPY, QQQQ, SMH for some diversification etc
Look for clean and healthy, cash-rich balance sheets. Beware of falling knives like Citigroup unless it drops to $10 :))
Oil prices at $140 do not help matters. The credit crunch is not over yet and the housing crisis has now spread fully from the US to the UK. Consumer confidence at an all-time low. Equities will be further buffetted in coming months by the real risk of increasing interest rates and inflation worries which raises serious concerns about corporate earnings outlook. So we can forget about any appreciable GDP growth, especially in the OECD economies.
I do not expect any meaningful recovery until next summer. The result of the US presidential election will have an impact - will the new president support Israel attacking Iran ? Will the White House become more constructive in relations with the rest of the world and especially OPEC countries Iran, Venezuela so that more oil can be pumped into the market to ease supply worries ?
So What should the value investor do ?
My answer is this : We should hold on to our stocks.
Go to "sleep" mode and assume that the market is closed for the next 5 years.
If you have some cash pick up some Starbucks, Bank of America, General Electric, Cisco, Microsoft, Coca-Cola, Gannettt, JP Morgan, Berkshire Hathaway, GlaxoSmithKline - all trading in bargain territory.
Also Look at exchange-traded funds SPY, QQQQ, SMH for some diversification etc
Look for clean and healthy, cash-rich balance sheets. Beware of falling knives like Citigroup unless it drops to $10 :))
Wednesday, July 2, 2008
What do you think about investing in China?
We might get too concentrated on US and EU companies and underestimate China’s growth, giving some good possibilities for our long-term investment strategy.
Recently I checked China Petroleum & Chemicals Corp. ADR (NYSE:SNP). It sounds interesting, however what concerns me is, that it is traded in its own country lower, than on NYSE. Is it influenced by lower demand in China, compared to demand SNP shares in the US?
After a 52W-low of $78, analysts expect SNP to recover next weeks to $112 or $119.
The negative Cash from Investing Activities and Cash from Financing Activities are giving me some concern.
From:
http://www.bloomberg.com/apps/news?pid=20601080&sid=a.TPeBij1c1U&refer=asia
June 20th 2008
Brief info:
China is expected to raise energy prices and fuel prices, as they are now approximately 30 % under the international import parity prices.
This way China expects to reduce oil consumption and improve energy – if the fuel prices are under control, they will have also less influence on the inflation.
In 2010 each unit of GDP shall use 20% less energy, compared with 2005 levels.
More details:
``The price hike is sooner and bigger than what we had assumed -- a 10 percent hike from Sept. 1,'' Goldman Sachs Group Inc. analysts including Kelvin Koh wrote in a report. ``The fuel price hikes are unlikely to crush demand.''
Refiners will ``get a big boost because they'll be able to raise their prices,'' said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong Ltd. ``Analysts will have to go back and rework their models.''
“China should raise fuel prices by 50 percent to boost energy efficiency and cut consumption, China International Capital Corp.”, the nation's largest investment bank, said on June 17.
**************
Reading about China, I got to the link of Pure Heart China Growth Investment Fund:
http://www.pureheartchina.com/english/investment.asp
Their investment ideology is guided by “intrinsic value” and “margin of safety” and promises an above average return over 30 years period, based on market conditions of growth in China.
We might get too concentrated on US and EU companies and underestimate China’s growth, giving some good possibilities for our long-term investment strategy.
Recently I checked China Petroleum & Chemicals Corp. ADR (NYSE:SNP). It sounds interesting, however what concerns me is, that it is traded in its own country lower, than on NYSE. Is it influenced by lower demand in China, compared to demand SNP shares in the US?
After a 52W-low of $78, analysts expect SNP to recover next weeks to $112 or $119.
The negative Cash from Investing Activities and Cash from Financing Activities are giving me some concern.
From:
http://www.bloomberg.com/apps/news?pid=20601080&sid=a.TPeBij1c1U&refer=asia
June 20th 2008
Brief info:
China is expected to raise energy prices and fuel prices, as they are now approximately 30 % under the international import parity prices.
This way China expects to reduce oil consumption and improve energy – if the fuel prices are under control, they will have also less influence on the inflation.
In 2010 each unit of GDP shall use 20% less energy, compared with 2005 levels.
More details:
``The price hike is sooner and bigger than what we had assumed -- a 10 percent hike from Sept. 1,'' Goldman Sachs Group Inc. analysts including Kelvin Koh wrote in a report. ``The fuel price hikes are unlikely to crush demand.''
Refiners will ``get a big boost because they'll be able to raise their prices,'' said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong Ltd. ``Analysts will have to go back and rework their models.''
“China should raise fuel prices by 50 percent to boost energy efficiency and cut consumption, China International Capital Corp.”, the nation's largest investment bank, said on June 17.
**************
Reading about China, I got to the link of Pure Heart China Growth Investment Fund:
http://www.pureheartchina.com/english/investment.asp
Their investment ideology is guided by “intrinsic value” and “margin of safety” and promises an above average return over 30 years period, based on market conditions of growth in China.
Subscribe to:
Posts (Atom)