One thing Mike & I have in common is that we both grew up in the same city (Brisbane). Both left Australia & went after success doing business globally.
I sat down with Mike for over 1 hour, with such pleasure!
Thread 👇
My background and personal story. The benefits of traveling around the world and the adventure of doing business globally.
We also discussed Asia's growth story & the rise of its millennials which outnumber Western economies by some 12 to 13 times!
Also, we discussed the way we see asset prices around the world today,
Including the long term cycles of traditional assets such as stocks & bonds — and how constant central bank intervention have affected these assets.
What to expect from capital markets going forward?
The importance of diversifying into alternative assets, especially hard assets like real estate, agriculture, and precious metals — which may benefit from the current and future money printing MMT experiment.
Example of Aussie agri-poultry assets we have invested in before.
Our family business in Australia, where we have done luxury property for our clients over the decades.
Here is our friend's project, which we also worked on last year. We worked on various interior & exterior features such as the kitchen, bathrooms, and the pool/patio area.
Here is another project we worked on last year, currently selling for over 15 million, located on the exclusive waterfront suburb in Brisbane.
We worked on all of the stone materials including driveway paving, kitchen & bathroom marble, wall cladding, pool & home limestone, etc.
We also had a conversation about my personal side project called the Atlas Investor Deal Flow service helping HNW & accredited investors, family offices and funds access some interesting real estate deal flow.
The conversation touched on our investment strategies and getting exposure to the real estate market via both equity and debt:
• development projects
• distressed opportunities
• multi-family syndications
• single-family luxury value add
• real estate funds (only sometime)
Other interesting discussions:
• importance of travel & doing business globally
• international tax planning & living in different countries
• advantages & disadvantages of real estate debt
• basics of development project due diligence
• family values & being mentored
You can find the podcast here and please make sure you do me a favor and follow @MikeBoyd.
Way underfollowed for the incredible content he is putting out there, so give him some love, please!
Unless there is a year-end rally, the Chinese stock market is on track for the fourth down year in a row. This is exceptionally rare for any global market.
Several key names — Alibaba, JD, Tencent, etc — show just how much corporate value creation fundamentals (FCF per share in blue) have completely disconnected from sentiment-driven, market expectations (share price in black).
In many cases, FCF per share is at or near record highs while the share price is near multi-year lows (in some cases decade lows).
See the $JD chart below.
Alibaba $BABA corporate value creation fundamentals (FCF per share in blue) have completely disconnected from sentiment-driven, market expectations (share price in black).
Tencent $TCEHY corporate value creation fundamentals (FCF per share in blue) have completely disconnected from sentiment-driven, market expectations (share price in black).
Despite a very strong 10-month rally in stocks, most global fund managers are still overweight bonds (risk averse) and underweight stocks (risk seeking).
Some sentiment surveys do suggest bulls are back, but the lion's share of capital (managed by funds) is still defensive.
Asset allocation by an average retail investor (AAII) and an average fund manager (BofA).
The sentiment correlation is quite close over the last two decades, but it starts breaking down in 2016.
We think more & more passive LT indexers, hence retail is persistently bullish.
In February of this year 4 out of 5 fund managers expected China's GDP to outperform. We know quite a few investors who held this consensus view, as well.
The Chinese economic GDP has disappointed since. Today, only 1 out of 5 fund managers believe China's GDP will reaccelerate.
1) Global economy has completely changed since the 1970s.
Today, intangible asssts (brands, patents, software, licenses, IP, etc) are twice as large as tangible assets (factories, plants, etc), which dominated the company investments 50 years ago.
This has many consequences.
2) Intangibles are expensed via the P&L statement, so they often don’t show up on the balance sheet the way tangible assets do (they are capitalised via cash flow statement).
Now, think how framing an investment as an “expense” will have a meaningful on financial metrics.
3) Intangible investments artificially suppress the net income (all of a sudden you have all these additional “expenses” which are really investments).
Therefore the P/E ratio is becoming obsolete and probably (almost) irrelevant.
If ROC is higher than WACC, growing revenue adds shareholder value.
If ROC is lower than WACC, focusing on growth destroys shareholder value.
If a money losing business attempts to grow faster by cutting prices to gain even more market share, it leads to an adverse outcome.
How should management think about growth vs profitability?
If the business is generating excess ROC (above WACC) then focus on stable growth is intelligent.
However, if the business isn’t generating excess ROC, the focus should turn from growth to improvement in profitability.
The management teams should refocus on growth drivers only when the cash return on operating capital employed has increased in excess of weighted cost of capital and that is now validated & consistent pattern (not a multi year cyclical event, like with commodity businesses).
Buffett repeatedly stated that value and growth are two sides of the same coin.
Graham purists (who disregard the asset's quality) commonly fall into value traps, because valuations tell them nothing without understanding the business's growth potential.
Simplified example. 👇🏽
Alphabet $GOOGL currently trades at 15.7x forward operating income.
Is that cheap or expensive?
We think that using such quick-and-easy metrics cannot help us in our due diligence process — it only leads to decision-making errors.
Simplified answer:
a) if the business can grow meaningfully from here the current multiples entry will prove to be cheap
b) if the business's economic moats start narrowing abruptly, resulting in disappointing grow and market share loss, it might prove to be a value trap
"What the human being is best at doing is interpreting all new information so that their prior conclusions remain intact." — Warren Buffett
It seems Alibaba investors are falling victim to confirmation bias the whole way down the slippery slope, which started in October 2020.
While some disagree, an attempt to pump the IPO by cutting the prices of services is a clear sign of management's short-termism culture and lack of capital allocation discipline.
Artificially generating revenue at any cost is not how most great CEOs and management teams think.