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Tiho Brkan Profile picture
@TihoBrkan
Apr 13, 2021 • 9 tweets • 5 min read • Read on X
Scrolly
House price growth in northern cities and towns is continuing to outpace southern locations, including London, according to the latest UK Land Registry data.

thisismoney.co.uk/money/mortgage…
Liverpool had risen 16.7% since the UK first went into lockdown last year.

Meanwhile...

In the City of London, the capital's financial district, prices were down 6.5% since March last year. In Westminster and Tower Hamlets, property prices were down 5% & 4.7% respectively.
Australian residential property markets are super hot, with all capital cities experiencing strong auction clearance rates and rapidly rising values.

realestate.com.au/news/property-…
“CoreLogic’s national home value index recorded a 2.8% rise in March, the fastest rate of appreciation since October 1988 (3.2%).

…exceptionally strong growth conditions remain broad-based, with values rising by at least 1.4% across each of the capital cities.”
Central banks are artificially holding rates as low as possible, not only in AU but worldwide.

If rates stay low, #Brisbane is as affordable to buy (service the debt) as it was in 2002 & 1980.

The chart below shows interest payments as % of average salary.

The keyword is "IF".
A lot of foreigners think #Australia has a property bubble, but relative to other global cities prices are inexpensive.

We believe #Perth (Western Australia) is one of those.

After 81 months of falling dwelling prices, the Perth residential market has most likely hit a bottom.
Meanwhile, another market in which we are quite active is #Prague (Czech Republic).

Premium property prices are reaching close to 130,000 Czech Krona per m2 (5,900 USD / 5,000 EUR).

Prague's market is turning RED HOT & making us very uncomfortable.
Residental prices across the Czech Republic are going through a once-in-a-lifetime boom and we are happy to have participated.

Prague has seen prices rise by over 100% since 2013.

However, sharp value rise & unaffordability are making us very uncomfortable investors.
Comparing Prague to others in Europe based on price to average annual salary isn't a pretty picture.

Prague is one of the most expensive cities in the EU, with valuations & affordability touching almost 14X average salary, while the whole country is at 11X.

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More from @TihoBrkan

Tiho Brkan Profile picture
Sep 14
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.Image
Alibaba $BABA corporate value creation fundamentals (FCF per share in blue) have completely disconnected from sentiment-driven, market expectations (share price in black).Image
Tencent $TCEHY corporate value creation fundamentals (FCF per share in blue) have completely disconnected from sentiment-driven, market expectations (share price in black). Image
Read 4 tweets
Tiho Brkan Profile picture
Jul 20, 2023
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. Image
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. Image
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. Image
Read 5 tweets
Tiho Brkan Profile picture
Jul 2, 2023
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.
Read 17 tweets
Tiho Brkan Profile picture
May 18, 2023
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).
Read 5 tweets
Tiho Brkan Profile picture
May 1, 2023
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. Image
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
Read 5 tweets
Tiho Brkan Profile picture
Apr 29, 2023
We are shareholders in Alibaba. $BABA

However, just because we are long the stock does not mean we should turn a blind eye to the folly going on in recent months.

bloomberg.com/news/articles/…
"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.
Read 5 tweets

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