Apple 'mego-ecosystem'

Apple 'mego-ecosystem'

Have been considering adding to position in Apple (AAPL) recently. It's been on my mind for the last two years as I saw my AAPL position double.

However recently joined a new group Facebook group 'Global Value Investors' which reminded me of the opportunity: https://www.facebook.com/groups/859829347419940/

Read some interesting articles for research so far. In particular the two below were especially helpful in getting back up to date with the company & Icahn's current views:

Carl Icahn's 2015 May letter to Tim Cook Apple CEO: http://www.shareholderssquaretable.com/carl-icahn-issues-open-letter-to-tim-cook/


Icahn sells stake in Netflix and believes Apple holds the similar opportunities for investors: http://www.bloomberg.com/news/articles/2015-06-24/carl-icahn-exits-netflix-stake-after-stock-doubled-this-year

Cheers
SS

Chamillionaire still ridin'

My mother taught me three things, respect, knowledge; the search for knowledge. It's eternal, eternal journey and not to be quiet. If there was something on my mind to speak it and to also listen. She told me this joke, That God gave you two ears to listen and one mouth to speak. And that's where the knowledge comes from, listening. And once you get the knowledge then you speak it." 

-Tupac Shakur

I spoke to my brother on the weekend who mentioned the rapper / entrepreneur Chamillionaire was now involved with in the tech venture capital industry. He's actually now an entrepreneur in residence at Los Angeles venture capital firm Upfront Ventures

After reading the blog by Upfront Ventures general partner Mark Suster I found some interesting points about business and entrepreneurship, two of which I'll summarise below.

1. Know when it's better to beg for forgiveness (or not) than to ask for permission.  He did this by putting some music online for streaming when he knew the record label would be against the idea. However after it led to more recognition and eventual success.“It would be successful and after it was successful nobody would say anything.”

2. Confidence comes from experience. “All the failures that people get so scared of is what I did.  It made me confident about what would work.  Confidence doesn’t come from being a ‘know-it-all,’ it’s because I’ve done this 10 times already.”


Later I also watched some youtube interviews and found another interesting point on the importance of auditing your income. During one interview Chamillionaire mentioned fellow artist Nelly was the first person who recommended he get an audit of his royalties. After some investigation he hired the same auditor that Jay-z used and found his record label had missed paying him $700,000! The interview is worth a watch for anyone interested in the future of music industry.


Lastly for those who want to get a taste or miss his biggest hit song Ridin' here is the link below. Enjoy!

Chamillionaire featuring Krazie Bone - Ridin' : https://youtu.be/CtwJvgPJ9xw

Cringely on reinvestment

Awesome post at Bob Cringely's blog about reinvestment by management - especially for investors in tech companies. Enjoy

Link here:

http://www.cringely.com/2015/06/03/autodesks-john-walker-explained-hp-and-ibm-in-1991/

Share structure on small cap performance

Came across an interesting article today.

The author compares share structure of small caps to their share performance.

The first time I had heard of this from memory:

http://smallcapdiscoveries.com/why-share-structure-tells-you-more-about-a-company-than-you-realize/

Li Lu quote

Li Lu "I'm not ideologically opposed to anything. I am against ideology."

Heilbrunn Center for Graham & Dodd Investing - CSIMA interview - Issue XVIII

Counter Intuition from Deep Value

Deep Value excerpts of interest on counter intuition:
Excerpt 3:


I'm uploaded these quotes as I find most people including myself often mistake and automatically correlate company business performance to their stock price performance.

Excerpt 1:
"As Graham theorized, and Mauboussin has demonstrated, it is the rare company that does not return to the pack. In most cases competition and other corrective forces work on the highly profitable business to push its returns back to the mean. The better bet is the counterintuitive one: deep undervaluation anticipating mean reversion. It’s Warren Buffett in his American Express investment, rather than his See’s Candy investment. An appreciation of mean reversion is critical to value investment."

Excerpt 2:
"These results establish two propositions. First, valuation is more important than growth in constructing portfolios. Cheap, low-growth portfolios  systematically outperform expensive, high-growth portfolios, and by wide margins. The second, more counterintuitive finding is that, even in the value portfolios, high growth leads to underperformance and low or no growth leads to outperformance. This is a fascinating finding. Intuitively, we are attracted to high growth and would assume that high-growth value stocks are high-quality stocks available at a bargain price. The data show, however, that the low- or no-growth value stocks are the better bet. It seems that the uglier the stock, the better the return, even when the valuations are comparable."

Excerpt 3:
"It wasn’t an improvement in the fundamental performance of these unexcellent companies that led to the market price outperformance. Like Peters’ excellent companies, the operating performance of the unexcellent companies declined on average, although not to the same degree as the excellent companies. In the unexcellent companies, 67 percent experienced a decline in asset growth rates, 51 percent had lower average returns on capital, 51 percent had lower average returns on equity, and 56 percent had lower average returns on sales. Strikingly, examined at the end of the five-year period, Peters’ excellent companies were still more attractive on a fundamental basis than Clayman’s unexcellent companies. What stands out, however, is that only three of the unexcellent companies had a decline in the ratio of price-to-book value, which means that the market revalued up 36 of 39 companies. This amounted to an average revaluation across the portfolio of 58 percent, a clear example of reversion to the mean."

Seth Klarman quote on analysis

Seth Klarman quote on the time spent analysing stocks:

But information generally follows the well-known 80/20 rule: the first 80 percent of the available information is gathered in the first 20 percent of the time spent. The value of in-depth fundamental analysis is subject to diminishing marginal returns.

Most investors strive fruitlessly for certainty and precision, avoiding situations in which information is difficult to obtain. Yet high uncertainty is frequently accompanied by low prices. By the time the uncertainty is resolved, prices are likely to have risen.

Investors frequently benefit from making investment decisions with less than perfect knowledge and are well rewarded for bearing the risk of uncertainty.

The time other investors spend delving into the last unanswered detail may cost them the chance to buy in at prices so low that they offer a margin of safety despite the incomplete information. 

Inconsistent behaviour

Poignant quote from 4th edition of 'What Works on Wall Street'

Money Management Performance

Past records of most traditional mangers cannot be predictive of future returns because their behavior is inconsistent.  You can’t make forecasts based on inconsistent behavior.

Warren Buffett on solving difficult problems

Warren Buffett on solving difficult problems:

"After 25 years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them. To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers. The finding may seem unfair, but in both business and investments it is usually far more profitable to simply stick with the easy and obvious than it is to resolve the difficult. On occasion, tough problems must be tackled as was the case when we started our Sunday paper in Buffalo. In other instances, a great investment opportunity occurs when a marvelous business encounters a one-time huge, but solvable, problem as was the case many years back at both American Express and GEICO. Overall, however, we've done better by avoiding dragons than by slaying them."

Stock price volatility vs fundamentals

Listening to Value Investing Podcast and heard an interview with Lauren Templeton & Scott Phillips about stock proce volatility vs fundamentals.

Here is an except from a Financial Times article by Phillips I found that summarizes the point:

"According to long-term research conducted by Robert Shiller, measuring the ratio of stock price volatility relative to fundamentals, stock prices are 14 timesmore volatile than the underlying fundamentals (measured by long-term dividends). For a value investor who can stomach this volatility, this means 14 times the opportunities to make a wise long-term purchase."

Source: 

http://www.ftpress.com/articles/article.aspx?p=1626977

Top investor outperformance chart

Top investor outperformance chart

Copied the chart below from csinvesting.org

Not sure if correct but shows a very interesting picture.

Investors include:
Jim Rogers, Charlie Munger, Peter Lynch, David Einhorn, John Templeton, Walter Schloss, George Soros, Joel Greenblatt, Benjamin Graham, Warren Buffett

Francis Chou Q&A selected quotes

Macheted Francis Chou's flow from his Gurufocus Q&A: 

"Immense benefit in buying outstanding companies that does not show up in numbers. There are numerous hidden margins of safety in 1) wonderful economics of the business, 2) great management who know how to allocate capital, 3) growing and sustainable free cash flow that are being deployed wisely, 4) you can make a mistake of paying up and still it may not matter that much because the intrinsic value is growing at a reasonable clip" 

"Tobin ratio is the best warning sign of a stock bubble" 

"It’s a margin of safety. If the company has too much debt, you buy the bonds instead"

"With redemptions during times of crisis, it can accentuate fund performance negatively. Having large positions of cash makes it less of a jarring experience to investors who maintain their positions as we don’t have to sell off stock to support redemptions"…"A good strategy is having a large cash balance and a fairy godmother who will fund your redemptions."

"My favorite investors are those investors who give me their money and then leave me alone."

 

Full Q&A here: http://www.gurufocus.com/news/310877/guru-francis-chou-answers-readers-questions

If by Rudyard Kipling

Currently doing a Deep Value Investing course by John Chew from csinvesting.org

John runs one of my favourite blogs and posted this great poem today:

http://csinvesting.org/2015/01/07/prayer-for-a-deep-value-investor-special-project-montier-reading/

 

If— A poem Phil Fisher kept by his bedside to emphasize independence of spirit and rationality/grace under pressure.

BY RUDYARD KIPLING

If you can keep your head when all about you

    Are losing theirs and blaming it on you,

If you can trust yourself when all men doubt you,

    But make allowance for their doubting too;

If you can wait and not be tired by waiting,

    Or being lied about, don’t deal in lies,

Or being hated, don’t give way to hating,

    And yet don’t look too good, nor talk too wise:

If you can dream—and not make dreams your master;

    If you can think—and not make thoughts your aim;

If you can meet with Triumph and Disaster

    And treat those two impostors just the same;

If you can bear to hear the truth you’ve spoken

    Twisted by knaves to make a trap for fools,

Or watch the things you gave your life to, broken,

    And stoop and build ’em up with worn-out tools:

If you can make one heap of all your winnings

    And risk it on one turn of pitch-and-toss,

And lose, and start again at your beginnings

    And never breathe a word about your loss;

If you can force your heart and nerve and sinew

    To serve your turn long after they are gone,

And so hold on when there is nothing in you

    Except the Will which says to them: ‘Hold on!’

If you can talk with crowds and keep your virtue,

    Or walk with Kings—nor lose the common touch,

If neither foes nor loving friends can hurt you,

    If all men count with you, but none too much;

If you can fill the unforgiving minute

    With sixty seconds’ worth of distance run,

Yours is the Earth and everything that’s in it,

    And—which is more—you’ll be a Man, my son!