Thursday, February 25, 2021
Friday, February 12, 2021
Three charts for today.
US property prices keep rising despite COVID-19.
HK property prices not falling despite umbrella riots and COVID-19. This is the power of QE. Do not fight the Fed.
Another chart to drive the point home. Apple's market cap hit 2.34 trillion dollars. We were so excited then it was closing in one trillion just 18 months ago.
Do not fight the Fed.
Happy Chinese New Year! Huat Ah!
Saturday, January 30, 2021
Gamestop is a game retailer in secular decline which was made worse by the pandemic. Well, it's in decline simply because we buy consoles from Amazon and games itself are now downloaded online so there is no reason to visit Gamestop ever again. But in recent days, Gamestop found itself becoming the epicentre of an epic war. Its stock price rose 1700% as the internet generation wanted to make a statement to Wall Street.
The statement was made on Reddit. War rallies on social media to save Gamestop from evil Wall Street hedge funds shorting the stock to bankruptcy. Gondor calls for aid. And Rohan will answer. Yes, they were answered. Millions of gamers and internet trolls bought Gamestop and drove the share price up so that short sellers will get hurt. They won the first battle, some hedge funds sold and a few even went bankrupt.
Two days ago, on 28 January 2021, Wall Street fought back. Various trading accounts, using share price manipulation as the reason, restricted trading on the name, driving the share price down from $469 to $132, an over 70% drop. The saga did not end, millions of Robinhood account holders complained and the restrictions were lifted. The stock proceeded to rise over 100%! So the fight continues. This is yet another manifestation that we are in this pandemic induced bubble. Irrationality overwhelms and share price volatility explodes.
We know this is not going to end well. Gamestop will not be saved (for the simple reason that Gamestop doesn't have an intrinsic value of USD22 billion) and many people will lose their shirts.
Sunday, January 24, 2021
Well, the answer is yes.
A slew of reputable investors have come out to say we are in a bubble. When I say reputable, we are not even talking about David Einhorn or Dan Loeb. Here's market veteran Jeremy Grantham who has studied bubbles over 50 years and he is telling us, we are in a bubble and this may become the biggest bubble we have seen.
There are a few characteristics about bubbles. First it is when valuations are inexplicable. Look at Tesla.
We discussed this before. This company has never made money for shareholders. It produces less than 500,000 cars and yet it is now bigger than almost all of the global automakers combined. In a bubble, it is easy to just look at the stock price. Nothing else really matters. Dividends, accident and safety record, resale value. Well, who's tracking anyways. People who bought Tesla look like heroes. Most would not have done thorough analysis but who cares. They made a lot of money and Elon Musk is their god.
The second characteristic is about people. We know we are in a bubble when everyone is crazy about stock markets. In the past, it was when grandmothers ask for stock tips. This time, it is exhibited over the social media. It started a few years with bitcoin. Remember ICOs? Then Robinhood allowed account holders to buy bitcoins. Bitcoin is now back with a vengeance.
The last characteristic relates to compounding and hyperbolic charts. Stock markets over time follow compounding charts and not hyperbolic charts. It is very subtle but important. All investors should understand this. The chart below shows Nasdaq. As with bitcoin, it went hyperbolic in 1999 and it is going hyperbolic now. When that happens, it has to crash. We just don't know when. It can last another year, or two or even three but it cannot go hyperbolic forever.
The next chart shows how healthy compounding looks like. Costco is the best retailer in the world. It gives customers a value proposition by selling things cheap in bulk. This discount is passed on to its customers who pay an annual membership fee. It is said that Costco is simply earning membership fees because it sells products at cost to its members. But because Costco provides such a strong value proposition, it compounds. It has done so over 40 years and will continue to compound healthily. No bubble here.
As you can see, the difference is very subtle. The Costco chart and the Nasdaq chart differs only during 1999 and maybe today. When we stretch out the x-axis over time, the Nasdaq bubble in 1999 does not seem so bubblish. Over time, like 40-50 years, it becomes a blip. But people who rode it up in 1999 and failed to get out lost their shirts. Today feels like 1999. We don't want that to happen to us.
There is a natural order to growth. A bubble grows by sucking everyone to buy in a very short time and money eventually runs out. Costco grows its earnings slowly, providing value proposition to consumers. It will continue to grow steadily until every single household in the world becomes its member and even then, it can continue to increase its product mix, continuing to provide value.
Bubbles are not about providing value, it is feeding on people's fear and greed. The fear of missing out and the greed to make a quick buck. Hence, bubbles always burst. We may be in the biggest one ever. Let's be really careful in 2021.
In the next post, we will explore a bit more about this pandemic bubble.
Sunday, December 27, 2020
The Starbucks Experience is an interesting quick read that served to remind us what it takes to be the best. We have to think bigger and broader than our competitors and be the best that we can be. Here's two lessons:
1. Great companies (or great individuals for that matter) are always at 100%. Everything matters and no details can be overlooked. We all have our up and down days but to be truly great, we strive to be the best all the time. Great sportsmen, great companies are constantly doing that. That is what it takes to be at the top of the game.
2. Embrace resistance. Nothing in nature grows without facing limiting forces. To work with resistane effectively, one must distinguish between good and bad criticism. We take heed of good criticism while ignoring those that are not true. It is also essential to correct misinformation swiftly. By taking these steps well, we can then grow.
There are only very few retail food chains that has grown so big and sustained for so long. After reading the book, I gained a better understanding why Starbucks is one of them, always trading at very high PER and is currently a USD 120bn company despite its business being brick-and-mortar and being hit badly by the coronavirus.
This is a stock that I would love to own someday. Happy holidays and wising everyone a huat 2021 ahead!
Sunday, December 13, 2020
In March 2020, when the coronavirus hit the US and everyone panicked and bought all the toilet paper off supermarkets, Disney's share price was flushed into the sewers as well. Its theme parks suffered with catastrophic fall in revenue as visitors number collapsed. Its movie business was similarly hit as people stopped going to the cinemas. Share price fell from USD 150 to USD 85. This stock was labelled as the covid-hit name. Avoid it like the plague!
Fast forward to December 2020, its share price hit USD 175, an all time high. Its market cap at USD 318bn is almost 50% bigger than Netflix and also Comcast, owner of Universal Studios. It has beaten Netflix at its own game with the spectacular success of Disney Plus, its newly launch streaming service. Disney now boasts c.100m subscribers across its various streaming services (Disney, ESPN and Hulu). While this is still smaller than Netflix's 195m subs, Disney has far superior content and should catch up in time.
The Walt Disney Company (its official name) has always been a unique company. Its larger-than-life eponymous founder/creator built the company by creating a mouse, an animated rehash of a fairy tale about a maiden and a poison apple and then dreamed about theme parks where stars are born. They became huge successes and Walt Disney captured people's hearts and minds as one of the most intriguing rag-to-riches stories in modern times.
About 15 years ago, the company made a few spectacular acquisitions under the watch of Bob Iger, a visionary CEO. In 2005, Disney bought Pixar, the hottest 3D animation studio in town from Steve Jobs. Then in 2009, it bought Marvel Studios for USD 4bn. It was lauded as a crazy move because nobody was reading comics and just a few years ago, Sony paid just USD 10m for Spiderman. Back then (and here's the punchline), the most famous superhero wore underpants on the outside and he wasn't even a Marvel character.
Well, as they say, the rest is history. On hindsight, its success was almost inevitable.
To crown it all, in 2012, Disney bought out George Lucas and acquired all the rights to the Star Wars franchise (again for c.USD 4bn). It then launched the last trilogy in the original Skywalker storyline with a disastrous ending. But fans didn't care, they just couldn't get enough of Star Wars. So Disney created all these spinoffs on the various characters (pic above). The current hit, The Mandalorian propelled the franchise back into people's mind during COVID-19 and Disney racked it all in. This is Disney's way.
As the story unfolds, COVID-19 hit its Park, Experience and Products as well as its Studio Entertainment businesses bad, but its Media Network and Direct-to-Consumer (where Disney Plus and other streaming services are housed) will be picking up the slack and bringing the company's profits back (see table below). In terms of cashflow, the company has also shown its operational prowess by diligently cutting cost and preserving cash. It managed to generated USD 3.5bn of free cashflow in the year ending Oct 2020.
In future posts, we hope to dissect its various businesses and better understand this solid compounder.
This is the way!
Wednesday, November 25, 2020
Another day, another enigma.
Tesla, a company that hasn't made profits cumulatively over the last 10 years, makes a mere 300,000 cars, is bigger than Toyota, Volkswagen, BMW, General Motors, Ford, Fiat Chrysler and Honda combined!
The automakers listed above make more than 30 million cars annually. 100x more than Tesla.
It also dwarf the recent inclusions into the famed S&P500 by a mile!
Well, maybe bcos it did finally generate USD1bn of FCF after burning USD10bn since its inception. Remember the market only looks forward, not backwards.
Or, we can attribute it to the Power of QE Infinity.
To Infinity and Beyond!
Sunday, November 15, 2020
Monday, October 26, 2020
COVID-19 has impacted various sectors in dramatic ways and yet benefitting totally different sectors altogether. This post tries to connect the dots and to crystallize some of these thoughts. Hope this helps!
1. Business and long distance travel. This will be impacted for a long time. Some say air traffic will not return to 2019 level even in 2024. As such, airlines are in a lot of trouble. Related to that, inflight meals (SATS), aircraft servicing (ST Engineering and SIA Engineering), hotels, tourism goods, luxury products, demand for gasoline, the whole aerospace industry, in short, the better half of Singapore's listed companies and even business travel solutions - SAP is down 20% in one day!
2. Social distancing. This has impacted restaurants, cinemas, live events, spectator sports, small businesses like massage parlors, pubs and related to that on-premise beer demand, liquor sales, soft drinks and the likes. Auto sales as well bcos you cannot buy a car without touching, feeling, test driving and sitting and talking with the dealer. That said though, Tesla is flying!
3. COVID winners. Conversely, the TMT^ sectors benefited big time. ZOOM, SAAS and remote work solutions took off. Amazon and Netflix benefited from shopping at home and more binge watching. Online learning boomed, together with ZOOM (decimating Pearson, the world's largest textbook seller along the way). Gaming is another big beneficiary and needless to say, vaccine related plays are also commanding sky high valuations.
So what to bet now? I will tend to focus on the beaten down ones to find the gems. Maybe JCNC can be an interesting recovery play when things settle down. People will need to buy their cars, bikes and finance such purchases for their livelihoods post COVID-19. There will be a lot of pent up demand for sure!
Looking back in history many years from now, this would be one of the most unique crisis that people will analyze for years. Let's try can still make some money despite some indices back to all time high! Might have room for STI to chiong. Huat Ah!
^ TMT stands for telco, media and tech. This was a buzz acronym in 2000 during the tech bubble.
Friday, October 09, 2020
This is one big growth area for the next five years.
Breaches have increased. Old chart - only until 2017. But should have kept going up.
Spending has increased and will continue to do so.
2019 was big. Well, 2020, with COVID, should have exacerbated the need for more security.
Buy HACK US - cybersecurity ETF. But do your own due diligence. Or check for my update here when I get down to do it.