Thread by @SeanPeche

1/
Imagine I told you in early June that $100 invested in an old discarded coal company would be worth $286,

while $100 invested in a Chinese darling, BABA & Tencent, both rated “BUY” by over 90% of analysts & forecast to grow earnings forever & beyond,

would fall to $77 & $ 81

2/
In 3 months

I think you may have sent me a get-well-soon card and muttered

“some people just don’t want to get it”

Is there a lesson in here?

Yes, it reminds us that the future is unpredictable

Which means the common narrative might not play out

3/
No matter how common

Be it:

Growth is Great

or

ESG is Everything

or

Inflation is Transitory

or

Passives not Actives

So what do I do?

Be diversified

Don’t bet on one strategy and

Ensure there’s a margin of safety

4/
There was a Margin of Safety when people (including its own parent, Anglo American…) were discarding Thungela like a lump of hot coal at less than 1x earnings

But there’s no Margin of Safety with Tencent

Even now

I think the analysts have all been drinking Kweichow Moutai

5/
(Let’s pretend that’s the Chinese version of Koolaid)

Because they all still seem to think the company is going to magically grow earnings from

RMB 135bn this year to

RMB 291bn in March 2025

How?

I mean just HOW are they going to more than double earnings in 4 years?

6/
When their 2 earnings levers – listing investments offshore and gaming

Are BOTH under threat by US AND Chinese regulators

Plus they're having to spend money on “Social Aid” grants

I can’t wait to see how these are accounted for ..

7/
Hey, maybe they can list those as SPACS - Social Purpose Aid ContributionS...?

anything seems to fly these days

But if regulators like reading accounts,

it’s probably unwise for the CFO to label those payments “non-recurring”

8/
oh yes, and has anyone else noticed that the $7.7bn pledged on a whim a few days ago is more than the sum of all the dividends ever paid to shareholders ($6.5bn)

mmm

Needless to say, I think there’s as much chance as these companies making those earnings as Tencent

9/
letting the youngsters ignore the new 3hr weekly time limit & binge-game nightly

But even if they do

Even then

they'd be trapped

I’m talking about the cash earnings, not the “Sustainable Social Values” payments of course

Anyway, I digress

So when someone suggests there

10/
are reasons why

Value could beat Growth

Or why Actives can beat Passives

Or why Small Caps can whip Large Caps

Please apply your mind more than the Tencent analysts are seemingly doing and don’t simply point to a recent chart or table and say,

11/

“Ah but look, it has done….

so on that basis... it just will”

And just remember how the Little, Old, Unwanted Coalmine

defied "logic" and whipped

the Great Giant Chinese Darlings

in 3 months

So stay open-minded

and have some money across strategies

because

12/

if that’s how wrong you can be in just 3 months

Just imagine how wrong you could be in 4 years