Case Study

This Is One Of The Reasons Why Chinese Billionaires Are Buying US Companies

Chinese billionaires have been on a buying binge in the US. This is partly due to slower economic growth in China and a perception that the RMB will continue to devalue.

Looking at the USD/RMB chart here, the strengthening of the  USD to RMB can be seen to have begun from 2014 or so. And so the acquisition of US companies began. Some of the acquisitions that have occurred so far are:

  • ChemChina's acquisition of Syngenta
  • HNA Group buys Ingram Micro for $6 bill
  • Blackstone to sell Strategic Hotels & Resort for $6.5 billion

and more...

(more…)

Charlie Munger

Risk & The Permanent Loss Of Capital

All investors are exposed to risk when investing in any form of asset class, be it equities, bonds or  property. Risk is not this unknowable, esotheric concept that so many amongst us fail to recognise. Risk, according to Warren Buffet, really is defined as the probability of a permanent loss of capital. And taking a lesson from the world's greatest investor, I would think it unwise to define risk in any another manner. Perhaps, an example at this point would suffice to drive home a message on risk.

Company A & Company B

Let us focus on a thought experiment for a moment here. There are 2 companies, Company A and Company B. Company A has little to no debt . Company B however is a highly indebted company with a debt to equity value of more than 200%, decreasing revenue and operating income as a ratio to interest expense has deteriorated in the last couple of years . Company A has a price to book value of 0.7 while Company B has a price to book value of approximately 0.6 as well.

Would you buy Company A or B at this point? Now, bear in mind that Company B gives dividends while Company A also gives dividends. So which company would you buy? So on a dividend basis, let's take it that both companies differ only slightly and these differences are negligible. Since this is a thought experiment, let us simplify things that way.

(more…)

Eddie Lampert

The Failure Of Sears, FJ Benjamin & The Future Of Retail

If one were to step foot into a Sears store today, one might find a truly sad state of affairs for the retailer, run by once former high flyer and billionaire, Eddie Lampert of ESL Investments.  Empty carparks, chaotic arrangement of goods that are in no demand and a sparse density of people will greet you as you walk in. And we wonder what the heck is going on? Afterall, this wunderkid, Eddie Lampert, used to have the midas touch. Whatever he touched used to turn to gold. Not so anymore!  And a company  spokesperson mentions that they are still in the midst of turning operations around. Is that a joke and who are they kidding? This is the chart of Sears Holdings from the year 2004. And it isn't a pretty picture for shareholders. The share price has been languishing from 2007. To find out what had been happening to Sears, let us examine some of the numbers reported by the company. Now revenues are the lifeblood of a retailer. Falling revenues mean serious trouble. This of course can be attributed in part to the  closure of retail outlets. And partly, Sears no longer carries the kind of products that its customers value. This has been exacerbated by the fact that retail is dying, largely due to the effects of ecommerce. I think Eddie didn't see that coming ten years ago. More on the effects on ecommerce later. (more…)