Long time no see. In the last few weeks there have been more and more articles about the AI bubble being inflated. And while that is true, it seems to completely ignore that nearly everything else in the US market is absurdly valued as well. Liquidity is extremely high, with Bitcoin being where it is and bubble stocks being inflated - even outside AI.

In the meantime, for many companies fundamentals have stalled or worsened and the US is reigned by a guy who changes his mind on tariffs faster than a squirrel trying to hide its winter supply. Germany, Austria, Denmark, Italy, France and Sweden and the Japan Post won’t deliver mail to the United States due to the tariffs.

And yet the US market has bubbled higher. So today, I am going to write about exactly that - and that the market has completely removed any notion of disbelief - being now the biggest stock market bubble in history. In the past the stock market used to be a leading indicator for the economy. However, due to passive index investing and that it is in the government’s best interest to keep it up, it has become a lagging one.

On Friday Trump changed his mind yet again, so many bubble stocks cratered - as well as Bitcoin, but they are still at extraordinarily expensive levels.

The AI Bubble

That AI is in a bubble is nearly impossible to disprove now. It’s multiple times the size of even the subprime mortgage bubble before the Great Recession.
What is more is that it is extremely circular. Everyone is investing in everyone - boosting their own demand.
OpenAI with 4.3b revenues in the first half of 2025 announces an investment/partnership with AMD and the stock went up 101b at one point on that news. Nvidia is now at 4.5 Trillion in market cap. OpenAI spent more on marketing and equity options than it made revenue in the first half of 2025.

Oracle’s projected backlog shot the stock up to over 1 Trillion in market cap. There is no consideration for the amount of hundreds of billions of dollars that are required for those data centers especially as the company has now negative Free Cash Flow and a Total Debt / EBITDA ratio of over 4. The stock jumped over $400b being promised $60 billion a year from OpenAI, an amount that OpenAI doesn’t earn yet, to provide data enter facilities that Oracle haven’t built yet. At the same time they had a double miss in earnings and revenue estimations.

The thing is that the more I actually use AI, the more skeptical I am of its real life usage. It has a big problem with consistent data, often making stuff up - and even when linking it correct resources or documentation it often ignores it. While I am sure that AI will be used a lot in the future, I don’t think it will be as much as the current projections indicate. If you look at the cover of this post it should become clear - it can’t even properly generate text.

Coreweave (who rents out Nvidia graphics cards) still with loses of 290m due to interest expenses and is of course valued at over 70b. If they can’t make money now, when will they be able to?

Given the insane sums that range into the trillion, there isn’t enough capital to do all that is promised - yet stocks act like there is. Commits to purchase is now treated as “has already purchased”. Enron used to call that mark to market accounting.

The ARKK / pipe-dream bubble

After years of outflows, Cathie Wood seems to be back. Having had their biggest single-day inflows since 2021 in the last few weeks. Palantir has overtaken Johnson & Johnson in market cap at one time and is now at around 420b in market cap. 140x P/S and yet hardly anyone can answer what they do - a throwback to Mark Minervini being asked about Upstart in 2021.

Quantum stock companies have surged to seemingly no end. Rigetti, IonQ etc have risen to 15b and 23b. With press releases like: “we expect Oracle Cloud Infrastructure revenue to grow 77% to $18 billion in 2025 and then increase to $32BN, $73BN, $114BN, and $144BN over the subsequent four years”. At the same time the tech doesn’t work. The downtime of IonQ quantum computers have been excessive - with one having 0.43% uptime the last 90 days.

Joby - a flying car company has overtaken Subaru, Renault and Xpeng in market cap and is now valued at 10x their projected 2030 earnings. There are so many of those companies out there, its nearly impossible to count them all. Many with a fervent retail following that could be nearly considered a cult.

Retails is also just buying. Call option volumes is at new highs, retail call demand is surging. There is no end.

Private Equity

Not having daily prices seems to be a new trend.

Tesla

There is probably more to write about Tesla than a reasonable book could fill. From the insane proposed 33b salary for Musk in the next years (that he will get without hitting any targets, which is 80% of the cumulative net income from Tesla), to the deteriorating fundamentals, slowing sales, damaged brand reputation and finally competition - it doesn’t look good. Fundamentally that is. The stock is doing fine being at 17x P/S and 1.4T in market cap for a car company, that if it weren’t for carbon credits would have posted an operating loss in Q2.

The new “affordable” model costs 3000$ more than the old costed last week with tax credits. On that the stock gained 75b in market cap. More than Mercedes, BMW and VW. Given that the tax credits were 7500$ that means that Tesla is having its profitability by car cut down by 4500$ each. Pipe dream isn’t a strong enough for the delusion that is Tesla stock.

Everything else

The thing is that nearly all companies trade at exceptionally high valuation. Apple is close to its highest valuation in history, with barely any growth. Costco, Walmart etc as well. Microsoft has questionable accounting with their AI investments.
The Cap to M2 is its highest since the Dot-com era and the Buffett indicator is well above the historical trend line.

There also is now an insane concentration risk. Nvidia now represents over 5% of the MSCI All Country World INdex. That is higher than Japan’s 4.78%, while China, the UK and Canada account for 3.33%, 3.23% and 2.92% respectively. It ‘s contribution to the index is now larger than France and Germany combined. I would not call that an All Country index.

Then there are dozens of companies like Doordash or Carvana that seem to ignore every reasonable valuation metric to their business model and are around 50-150b in market cap. (Given that the total used car market profits are 9b - including small dealers).

What baffles me as well is that numbers that companies put out are taken at face value. For example Meta puts out a number that estimates how many users it has in total (DAP = daily active people). That number is not the total number of user accounts, but their estimate of unique people using at least one of their products - and they state that their margin will be 3% of their worldwide DAP. Meta is putting that number at 3.48b. So if we take the Chinese population and people without internet, we only have 4.1b left. That means that they 84% of the total remaining worldwide population use meta daily? And that is without taking into account children or elderly - that is a very optimistic number. But I haven’t found a single analyst or public person question this number.

The ratio of S&P 500 Growth to Value in the US has hit a new record high, surpassing the peak of the meme stock bubble in 2021.

If we go with P/S, P/EBIT, P/FCF and ROCE. These are all more expensive now than they were during the dotcom bubble.
The tariffs are already putting a strain on farmers. Last year China bought 47% of the US produced soy beans, this year it is zero. The US administration did spent 20b on Argentinian debt tho, who is the biggest exporter of soy to China after they stopped buying from the US. One doesn’t need to have a history degree to forecast what happens when farmers struggle.

Furthermore so far in 2025 companies have announced nearly 1 Million job cuts, the highest since the pandemic year of 2020.

How long will the bubble last - nobody know. I have bought a few 2027 puts.

There are so many companies that are extraordinarily cheap in the rest of the world. Why bother with a market where the fundamentals as much as the truth does with the current US administration?

2024 was a wild year.
I lost 9 kg and and am now back to normal weight. Furthermore I started to enjoy going to the gym.

Reviewing the performance

In terms of performance it was volatile, at the end being up 8,67% . The year started relatively well with Hong Kong stocks being flat, and Sumiseki being short squeezed being a 10x from my purchase account. I missed the sell window tho and the stock went limit down several day in a row.
In the end, the stock was a 5-bagger. Sadly it was sized very small.

Then throughout the year I was up over 50% at one time due to Hong Kong and Chinese Tech stocks going on an absolute tear. After that I miscalculated the Trump win and got my face absolutely ripped on in the insane rally that confirmed we are in a huge bubble on my shorts.
The market trades independent of fundamentals. Fartcoin is at over 1.3b market cap and Tesla is up despite having negative growth in terms of deliveries, and trading higher than the whole car industry combined.

Overall the year ended kinda meh. 8% is not bad, but compared to the market it is. I still hold most of the companies I wrote about in the last year and still think that China and Hong Kong is incredibly cheap.

Seeking investment biases

I always try to find out where my biases lie. I know I buy too early - but for example when back-testing if I should held positions 1, 3 or even 5 years longer than I bought them at - I sold pretty well.

What I found out however, is that my allocation at the beginning of the year - even in terms of shorts, created better returns than what I changed during it.

So I decided to put part of the money into a new portfolio and especially sectors I find interesting.
The portfolio will be 115% long and 15% short, with defined stops and I won't look at it until the year is over. The different themes are very similarly balanced with a focus on China and Oil stocks.

LATAM

Brazil and Colombia seem to currently have problems with their currency and political uncertainly. Bancolombia the not just the biggest bank in the Colombia, but one of the cheapest worldwide.
In Brazil the fintech-bank Nu Holdings seems extraordinarily cheap given their growth.

Oil

Oil seems to have been a forgotten asset, that despite middle-east tensions has gone down over the last year. However there are a few companies that are in my opinion too cheap to pass up on.
Ecopetrol, Petrobras for LATAM oil companies and Viridian, African Oil and Tidewater to play a rising oil market in general.

Mining

Another sector I think will do well is Mining. I have three undisclosed small positions that are a bet on a friend, who is involved. The other positions here are Glencore - which is among the most diversified and cheapest mining companies out there and Global Atomic.
The situation in Niger with Global Atomic is still uncertain, but it is now at a point again where the Turkish Smelter is worth as much as the whole company.

China

China is another big allocation. Xiaomi and Tencent are the biggest ones being followed up by BYD. Postal Savings Bank of China is incredibly cheap and so is Netease given the recovery in computer gaming. Since I already have Alibaba in the other portfolio as a big position, it is not here.

Video Games

Speaking of video games, it is another sector that I am bullish on. Especially the sim game sector is interesting. Guillemont, makers of wheels etc and Digital Bros who makes the racing sim Assetto Corza. CD Project Red (creators of the Witcher) is another interesting company. They ironed out the at launch lackluster Cyberpunk and are now developing Witcher 4.

GARP

This is probably the smallest allocation, but they are YubiKey, which are the makers of hardware two factor authentication and Zigexn - a Japanese companies I have followed for a few years now.

I hope you all had a great year and I wish you a great 2025!

I just wanted to give a quick update on my thoughts on the market. I hope you enjoy my rant. Let me know if you liked it and if I should do them more often!

Hello everyone,

unless you have been in an alpine cabinet with no internet connection, the news of Crowdstrike's outage has been hard to miss. A huge amount of businesses have been affected.

From airlines where several airlines canceled nearly all flights, to payment providers, banks, 911 service disruptions and even healthcare. Microsoft estimates that over 8.5 million devices were affected by the update - in my eyes a very low estimate. As a result the stock has been down 11% during Friday's trading session.

Dan Ives called it a black eye, and that it is importantly not a hack/cyber security threat. This notion has been thoroughly repeated by others on Twitter/X and some even compared it to the American Express Salad Oil scandal, where Buffett famously bought the cratering stock price and made a huge profit on the rebound.

However, as I am currently working in IT, this incident is a lot worse than if it would have been a security breach. Crowdstrike showed their incompetence and lack of checks in place. Microsoft breathed a sigh of release, because at least it wasn't them!

What happened

On Friday morning the company pushed an update, which caused Crowdstrike's Falcon Agent to crash Windows computers resulting in a blue screen of death and the PCs restarting over and over (bootloop).

The workaround was deleting specific sys files, which caused the Crowdstrike driver to crash. Tto be effective Crowdstrike is buried deep in the system, this caused a Windows Kernel panic and thus the computer wasn't able to restart.

The error was due to an invalid memory address (here are some technical details if you are interested: https://x.com/patrickwardle/status/1814343502886477857 )

This resulted for example in airlines shutting down, or reverting back to writing boarding passes by hand.

After the workaround was initially discovered it was posted in the knowledge base of Crowdstrike behind the login screen. An insane blunder given that many systems were down, so employees probably didn't have access to all credentials finding the fix on their phone. It was luckily re-posted by other media, but that was not the only blunder they made regarding their response here.

Their CEO George Kurtz posted on Twitter that customers remain fully protected despite the incident. That much is obvious, because the systems were offline. He then said that they deployed a fix.

The problem is that they just rolled back the update - and that the fix has to be made on the IT side. That can either happen with a PXE Server, where most PC's would be able to be quickly fixed, or if there isn't a PXE Server the IT team has to go into each system manually, delete the sys files and then update Crowdstrike once the PC has booted.

Their technical update from the company reads more like a liability and lawyer document than a real technical update.

https://www.crowdstrike.com/blog/falcon-update-for-windows-hosts-technical-details/

I know people who spent the whole night restoring hundreds of servers, having tens of thousands or even hundreds of thousands affected endpoints. With the whole IT in scrambles trying to restore the most essential business functions it will take a while until every one of them is working again.

Why this is worse than a breach/hack

A lot of Wall Street analysts said that this is only a hiccup and that because it was not a hack, that it isn't a big deal. I disagree. First the update bricked millions of PCs, requiring manual intervention to fix the problem. Secondly it shows a completely broken release process on the side of Crowdstrike, which is a lot less forgiving than a cyberattack - which is to be expected.

This is also not the first time the CEO was involved in a major update meltdown. In 2010 as the CTO of the antivirus software McAfee it caused a reboot loop of Windows XP PCs, also requiring manual repairs.

https://www.zdnet.com/article/defective-mcafee-update-causes-worldwide-meltdown-of-xp-pcs/

Five years ago, Crowdstrike released the 5.19 update resulting in blue screens as well and again requiring manual intervention.

A few months ago another Crowdstrike update broke Debian and Rocky Linux.

These incidents show a major problem in the internal release process of Crowdstrike. Just like with Solarwinds were malpractices went on for years, a single big incident can wipe out or significantly reduce the customer base.

The first instance where the update bug should have been caught, was on the developer side. It seems that there an update was pushed without a test. The second would have been an automated test in the CI/CD pipeline. The third instance should have been the Q&A team, that tests outgoing releases and the last instance should have been a staggered roll-out. Meaning that instead of pushing the update to every client, they would have pushed it to 1% of them and after about an hour pushed it to 10% etc.

This is especially important for a company like Crowdstrike, because you can not disable the automatic updates. The company has eroded all trust form a stability standpoint and that is hugely important in IT.

Crowdstrike is more in the premium offerings, and because it mostly worked - and there wasn't a huge incident before, IT managers were glad to roll them out. Well not anymore

Why this isn't a buy the dip moment.

Despite the 11% drop on Friday, the stock still trades at an incredible 22x P/S. Lofty expectations for a company, which will likely see major repercussions.

This also isn't similar to the American Express Salad Oil scandal. While putting a lot of pressure on the company it did not effect the core business of American Express. This breach does.

Given the premium nature of Crowdstrike new customers will rethink to either go with Crowdstrike or a different provider like SentinelOne. Crowdstrike will have to give huge discounts in order to convince new sign-ups, having to choose between obliterating their margins or their growth. Others will churn. An anti-virus software is less embedded into different systems than an authentication provider like Okta, so you can't compare the two breaches.

Switching costs are a lot lower. Okta already had to offer huge discounts, and it will be worse for Crowdstrike. Crowdstrike used to be like buying GE in the 90s - you couldn't get fired. Now not so much now. No IT manager will sign up with them unless they are a lot cheaper than other offerings, current contract negotiations will grind to a halt.

There will also be loads of lawsuits.

The damages are in the billions, and given that critical infrastructure was affected simple SLAs or TOS won't protect them, especially since it affected so many different countries.

Their insurance company also likely doesn't want to pay given that the nature of the outage wasn't a hack or breach but severe incompetence.

Furthermore this incident has gotten the attention of every government body - 911 services, hospital and airport were affected. Cybersecurity diversity will be discussed and Crowdstrike will likely need to pay damages and prove with costly audits and oversight teams that such a thing can't happen again.

Conclusion

Crowdstrike as the stock is priced to perfection. At 22x P/S it expects huge growth with nothing going wrong, but it just did. Either their growth or their margins will be absolutely obliterated and given their valuation it has a long way to drop. If lawsuits from different companies, countries and jurisdictions follow as well as new regulation, there is no way in my eyes that they can sustain such lofty valuations or growth expectations.

SentinelOne trades at half the P/S valuation and Palo Alto Networks at around 15x P/S. A small discount from SentinelOne might entice some companies to switch, I am taking a long/short approach on Monday.

Twitter Ban

In recent months, Twitter has become worse and worse. The search function is more often broken than working, the "For You" feed has been getting more irrelevant each day, rising racism/anti-semitism and many have chosen to leave it given Musk's antics.

Now I was banned for no reason at all.

Twitter doesn't provide a reason and they auto-deny all appeals with no other way to contact them. Additionally they don't even respond to GDPR requests using their official forms requesting the deletion of my data. So much for a "working" social media platform.

Sadly that also means that I have lost a lot of great contacts, where Twitter was the only point of contact.

Their exact handles remain a mystery and given that the contact search function now also works differently - instead of showing the people that other people you know follow, it shows the most popular ones - it is basically impossible to find them again.

So if we have been in contact, or you want to just talk, you can either respond to this blog post mail, or write me on Signal. My user name is: mroiss.01

Podcast interview.

I recently did a podcast interview with Brandon from Value Hive. Value Hive has been one of my favorite podcasts since I discovered it in mid 2022 and it was an honor to be interviewed there.

I talk about my investment process and what I have learned from my mistakes. Timing wise it was a bit unfortunate as I was banned on Twitter the day the interview was released. However I am still happy that I was on!

Post risk world

The US market is a bit in a risk-free world phase with valuation that are very close to historical all-time highs (especially when you adjust for taxes).

For example both Apple and Microsoft are up a lot despite EU, DOJ and FTC investigations. Apple trades at a whopping 34 PE, which is pretty much the highest it has ever been and that despite revenue growth disappearing. Add the EU and DOJ investigation and the market seems to not price in any risks for the company.

Tesla is another one that choose to defy gravity. Today it reported a 5% delivery decline, and apparently "beat" expectations. Well it didn't if you take just last months numbers. Furthermore Tesla trades a 10x premium compared to other car companies and at a 8x premium to BYD.

BYD reported a 35% growth in deliveries yesterday and was down in HK. Tesla added a whole BYD the last two days if we include premarket. 8x P/S for a shrinking car business, despite all the massive price cuts the last year is brave. Free cash flow turned negative last quarter, and shareholders are getting diluted 10% - giving the CEO a pay package that is worth more than $10 000 per car that the company ever produced - more that the company ever made.

ARM's valuation is out of this world, and Nvidia prices in perfection with 55% of their revenues coming in from just 4 customers. Coinbase is worth more than many of the best banks, despite ongoing battles with the SEC and Microstrategy still trades at an insane premium to Bitcoin. Data centers a very cap-ex heavy industry trade at 8x P/S.

The baffling thing is that some previous connections are completely breaking down. For example FedEx was up a lot on their earnings, but Chinese e-commerce went down the same day. Apparently they only transport parsnips now.

Boeing got sued for fraud and was up the next day, but let a Chinese regulator sneeze and the stock is down 15%. That may be justified given the risk in China, but the risk-free attitude of the market certainly is an ongoing theme.

Furthermore companies like Lufax and Huya return insane amounts of money to shareholders, but they don't have the explosive share price growth as someone like Palantir - because they are not US.

Small and mid caps in the US are historically cheap, it is just the tech or what seems to be "quality" that have insane valuations.

For example WD40 and Costco have absolutely unjustifiable valuations for their growth. And the market doesn't discount news properly anymore.

Rivian went up 7b on news that VW will make a 1b investment with the potential to go up to 5b until 2026. Rivian burns around 1.4b a quarter. Additionally details emerged that this investment will bring a 10% dilution to existing shareholders, making it seem that Rivian is getting desperate with their cash burn. The stock did go down a bit from the initial 50% surge, but it is still up over 30% in the last 5 days.

The US stock market prices in absolute perfection and no risk for profit disruption. I think that tech, tech adjacent industries and "quality" are in a huge bubble in the US market.

Luckily with small caps, European stocks and Hong Kong trading so cheaply, there are more than enough opportunities so one can still invest.

Here is a Buffett quote from his partnership letters from 1959.

Everyone idolizes Buffett - so why does no one invest like him?

Speaking of Buffett.

There is probably no investor in the world has been studied as much as Warren Buffett has and yet seemingly nobody invests like him.

Now there is a whole swarm of Buffett copy-cats that take his current approach of buying durable companies under around 15x Free Cash Flow (although they usually pay significantly more) and then holding them for a long period of time. The thing is that they don't invest on how Buffett would have invested given their size.

Buffett only changed his approach, because the net-nets that he has bought became a smaller and smaller portion of his portfolio as it grew so quickly. If you adjust it to today's prices, Buffett's portfolio when he changed his approach was already over $250 million. A far cry from many of his imitators. Yet while they are obsessed with his current ideas, they seem to discount his old approach.

Dissecting his approach

Young Buffett had three approaches. The first one were general undervalued stocks, which he called generals. Pure value was enough, a catalyst wasn't required.

The second one were work-outs, which are special situations like mergers, liquidations, spin-offs etc.

The third one were control situations, where he took a substantial amount in an undervalued stock, that would have previously been a general and then forced them to divest assets to pay out dividends or clean up the operation. Given that I can't do activist investing due to my small size, I will focus on the first two.

Generals

These are companies that are severely undervalued. From his writing, we know that these were mostly net-nets. Furthermore an investment in the control approach show us what the minimum discount is. There the entire business was very profitable and they had assets in stocks and bonds. The whole company traded at less than 70% of the NAV of the portfolio completely ignoring the profitable business or the assets of the business. Buffett had control of the company and forced the payout, it is very likely that in an uncontrolled situation, his required discounts would be even higher.

The generally undervalued companies are usually the largest section of the portfolio, with 5-10% in 5-6 positions with small positions in another 10-15. Quite often he sold before it reached his fair value as the discount was so high. We can also observe that he also bought into companies that had severe governance problems, sometimes going activist on the management teams.

Workouts

Workouts would be called special situations today. The amount of workouts in a portfolio would depends on the valuation of the market. With a rising market, the special situation allocation would increase to protect against a potential re-rating.

Given the information we have about the portfolio from his letters, they could be up to 20% for a single position - but most of the time he had 10-15 positions with an allocation of 2-3% so that the majority of the portfolio would still be the generals.

Finding them

Anyway for finding these net-nets an easy screen would be running everything under 0.4 P/B or everything under 0.5 P/S and then looking at the ones that have a great balance sheet. For those generals I have quite a few companies from Hong Kong, the most undervalued one being probably Lufax - who recently paid out over 52% in dividends. I am currently going over gold miners and European tech companies to find potential generals too.

For Workouts, I haven't paid too much attention recently. So if you have any sources there, please let me know and connect to me via mail or Signal!

I have been on holidays in Hong Kong for 6 days and one day in Shenzhen. During that time, I was taking in the culture, great cuisine and vibe of the city. I met some great people and also was able to check out the products or experiences from some of the companies I owned. This post will describe that experiences.

Small caps I bought

It took quite some time, but I have now finished buying the rest of my stocks in Hong Kong. I will now go over a list of net nets in Hong Kong to find companies, that don’t have the best quality, but are cheap enough. Gold miners are another interesting point to look at. 

• Lion Rock Group: Printing company that I have already written about them in the past and they have a good management.

• Analogue Holdings: Another company that David Webb owns. Solid dividend payer, with a decent balance sheet.

• First Service Holdings Limited: Very cheap property service company, that is also very illiquid.

• Medialink Group: Anime distribution company with a nice dividend and solid earnings.

• Taste Gourmet Group: High growing restaurant company that isn't too expensive with solid dividends.

• Anxian Yuan China Holdings: Funeral company that has the same thesis as 1448 and cheaper.

Diary from Hong Kong & Shenzhen

After arriving to Hong Kong, I saw a big constructions zone around the Airport and when walking the city there were quite a few others actively being worked on. Given the activity that I observed, the death of Hong Kong has been greatly exaggerated.

Shenzhen was a bit different. It seems that the city is in an unfinished state. Some parts are well lived in, but  with no light between apartment complexes, other were empty and even more were actively being built on. Many in Hong Kong go to Shenzhen as the prices are vastly cheaper, and even I was surprised by the huge difference which can be around 30-50%.

I did enjoy my time in Shenzhen, it was interesting to see such a huge mega-city. Being honest, I prefer Hong Kong. It is a lot smaller so you can go anywhere easily by a combination of public transport and walking and you are in nature more quickly. Because I didn't know on how to properly structure this report, I decided to do it in terms of companies, rather than via timeline.

Café de Coral

This fast food chain is a staple of Hong Kong, and I can understand why. It was exceptionally mid in taste, but it was incredibly cheap. I paid 4.5$ for the whole meal with a coke. The place I was was completely packed and after looking into a few of those at different times of the day, it seems to always be the case. It was a bit better than McDonald's in my eyes and a lot cheaper. What I only realized after talking with someone in Hong Kong is that because rents with kitchens are so high, many rent without a kitchen and Café de Coral is the default meal option because it's cheap. 
Given that it isn't too bad and they got a big variety of different foods during breakfast, dinner and lunch I can understand that.

Giordano

A discount clothing retailer that is held by David Webb and that recently has been taken over by Chow Tai Fook. In the past they have often paid around 10% dividend yield, but given the takeover it is unlikely that they will do in the future. Furthermore each of the locations I saw in Hong Kong was completely empty. Even in prime locations, where even the Chinese Medicine stores next to it where packed, no one seems to be there. I don't think there ever will be a big multiple expansion as earnings continue to contract.

Tsingtao

I had my first Tsingtao and it was from a can, not even from a tap. Despite me preferring heavier beers (with my favorite being the Freistädter Rathsherrn), I found the Tsingtao to be excellent. Given that the company has a cheap valuation compared to nearly all other alcohol and beer companies, I have made it a small position.

Haidilao 

The hot-pot chain was an experience. There were around seven Haidilaos in Shenzhen, and with the exception of one, I couldn't get a reservation before 21:30. Even for the one we eventually went to, I had to wait an hour (in that time I looked at the Xiaomi EV). In front there was an area where you could get your nails done, a small children's playground and quite a few books to keep you entertained while waiting. The food was good and the whole thing was bustling. The wait staff sang a birthday song several times to different people, and while that isn't my cup of tea - the Chinese seems to love it, often clapping and even singing along. The waiters also were very considerate, n bringing suggestions or complementary sauces to try with different meats/fish - all of which were delicious. Given that all hot-pots use the same ingredients, the differentiation will be the service, and it was one of the best service I ever had in a restaurant, especially in that price range. Overall I left quite satisfied and very full.

Xiaomi

I was quite bearish the Xiaomi EVs given the high competition and thought that it just would be a big distraction for the company. After sitting in one, I at least don't hate it any more. It still has this disgusting vegan leather that is currently in style, but other than that it looks at feels excellent. It remains to be seen how reliable or good the car is, but for what is essentially a 30,000$USD car the interior is amazing. While not on the level of a Mercedes, the interior is similar to the ones in mid BMWs. Legroom and trunk give quite a lot of space, and the design -  a mixture of Taycan and a Mercedes EV, looks cool enough. Whatever the outcome for the company will be, one thing is for certain: It will take sales away from Tesla in China as it is cheaper, newer and looks better.

The Bubble Tea Wars

After my recent deep dive into the bubble tea market and Nayuki, I of course had to do a lot of on the ground research. Everyday I have tried at least one, and mostly two different bubble tea brands. The first day, I sadly forgot to take a picture, but I tried Mixue and it became pretty clear why they are everywhere in China. They are very cheap. But that is the nicest thing about them. The pearls (boba) have a texture to them that feels like it is several days old, the milk was way to powdery and the sugar or sweetener had a weird aftertaste. For me it was clear that there is a clear differentiation between the more premium brands like Nayuki and HeyTea or the cheaper but more common ones like ChaPanda and Mixue. Given the stark difference in taste quality, I also think that many will upgrade to the more expensive brands if their income permits. 

As a result, the next days I mostly focused on more premium brands. I tasted several great independent shops and some of them were excellent. I think that just like independent burger joints or small coffee shops as they don't compete with the bigger brands they aren't as relevant for an investment thesis. 

ComeBuyTea

One of the competitors which is currently in the premium sector and beginning to scale is ComeBuyTea, which can only be described as hipster. They brew the tea new for each order, which also means that wait times are relatively long. Even with few people ahead of the queue I waited around 10 minutes. The tea is really good, but the boba was too jelly like and in contrast to more traditional boba wasn't very good. There was also only five places to sit, so not great for a hipster experience. In contrast to many others, there were few delivery orders, I guess because of the long wait times. While they might offer competition in certain areas, I don't see them scaling to rival Nayuki or HeyTea. 

HeyTea

HeyTea is by far the biggest competitor to Nayuki in the premium segment and as they scaled quickly with franchising, they have more than double the stores of Nayuki. However if there ever was a business case to warn of the dangers of franchising and inconsistent quality, HeyTea would be a good candidate. In Hong Kong the store didn't feel premium, and felt even cheaper to Mixue. They had twice the employees of Nayuki on the peak, and yet with just 8 orders in front of me took over 10 minutes for one of their classic orders. Their tea was fine, but nothing special and the fruit boba was disgusting. I also explicitly choose less ice, but it had loads of foamed ice and not a lot of tea. It was slightly cheaper than Nayuki, but the experience in Hong Kong was a complete let down.

However, I did check them out in Shenzhen again and the experience was noticeably better. There were places to sit and the store felt generally pretty good. The tea was great, however I could not add pearls when ordering over WeChat, which was a bit disappointing. What was interesting again tho, that they also did not offer any baked goods or snacks. That was generally a trend among the bubble tea stores with the exception of some independent stores and Nayuki.

In the outlet I visited in Shenzhen, a Nayuki, HeyTea and a Starbucks were pretty close together and I walked by them on two occasions and during different times . What was noticeable was that the Starbucks was pretty much deserted, while there were always a few people in the HeyTea and Nayuki store. Given that the Starbucks prices where in line with these stores, from a purely anecdotal experience it seems that many Chinese do prefer bubble tea to coffee. 

Nayuki

Obviously I am biased but I truely enjoyed Nayuki. At the peak in Hong Kong it was absolutely packed. There was around a 20 minute wait time and nobody cared. So that was a well chosen location. The tea was really good and not bitter and the boba had perfect texture. It is pretty easy to overbrew the tea when there are lots of customers, so I was happy that they didn't. It was certainly on the pricier side with 41$HKD, but given that it was on the peak and nearly everything there was significantly more expensive that wasn't too bad. "The Alley" is still my preferred brand in terms of teas, buy Nayuki is now firmly in second place. 

I also checked them out in Shenzhen and there the atmosphere was nice as well. It wasn't as packed, but still well visited (given that I was there are 11:00). Their bread and snacks offering was very nice and as I said previously I was surprised that hardly any bubble tea store offers baked good.  

Bubble tea conclusion

What the visit to so many different chains and independent stores made clear for me, is that there more differentiation than I previously thought. There is a clear separation who Mixue for example targets in contrast to Nayuki or even HeyTea.  Competition is incredibly fierce tho and as I wrote previously it is very likely that margins and growth will slow down. It is hard to forecast the Chinese consumer preference, but given what I saw, I will stay invested in Nayuki. 

I hope you enjoyed my small travel report! Until next time.  

Today I will quickly write about my Hong Kong Mid Cap buys and then look at the bubble tea market and the company Nayuki Holdings. Bubble tea is a section that has been very much ignored by investors due to the lack of publicly available companies despite huge growth. It has also been very much ignored in the West, given that it is mostly an Asian phenomenon (which is slowly changing). 

 Mid Caps I bought in Hong Kong

• Tianjin Development Holdings 882.HK trades at 0.14x P/B. It is a pure mean reversion trade. Quercus fund thinks that is is worth 6-11x more than the current market price. I disagree with that optimistic of a projection, but just based on mean reversion, the stock should be up 3x. 

• SmarTone Telecommunications 315.HK: The company trades at under 5x EV/EBITDA with a stable customer base. The company has over 8% dividend. They also started to buy back some stock. 

• Cafe de Coral 341.HK: Pays a decent 5% dividend and has returned to growth after years of slowdown. The companies earnings are still significantly lower than 5 years ago, at current earnings it trades at 7x EV/EBITDA if it recovers it would trade at around 4x EV/EBITDA. The company is an absolute staple in the Hong Kong fast food market, so not a lot has to go right here. 

• JNBY Design 3306.HK: Fast growing ad company at 7x P/E that pays 8% dividends. Has a decent customer base and is expanding fast. 

• E-Commodities Limited 1733.HK: Coal trading company at 1x EV/EBITDA. Earnings will be lower this year as the coal price normalises, but they buy back a significant amount of shares and had a 10% dividend

• G&M Holdings 6038.HK: This is a super small company (and not a mid cap, so careful of the liquidity). Facade renovation company at negative Enterprise value. Earnings have been growing and they recently bought stock in a Mongolian coal mine, the stock also yields 9%. 

• Nayuki 2150 HK has their own niche in the bubble tea market and being at 0.7x P/TB and 0.7x P/S is significantly undervalued with long potential growth. 

Bubble Tea

Bubble tea, invented in Taiwan in the 1980s, is a drink that typically consists of a tea base (mostly black, green, or oolong tea) and is either milk based or mixed with fruit flavours. It is topped with Tapioca pearls (also called boba). Tapioca is made from cassava root starch and is most often mixed with brown sugar, making it black. 

Nowadays you can have the boba in many different flavours like lychee and many more and it has a gel-like texture that is sticky and elastic and thus provides a unique texture to bubble tea. The different kinds of Tapioca have become the signature of the drink. 

The bubble tea market is an immense growth market. It is expected to grow at a CAGR of 18.7% from 2023 to 2028, reaching RMB 1,180.5 in market size. The main customers are in Asia, with rising consumption in the west and are 20-35 years old. 

The freshly made drinks segment, also exhibits one of the highest growth rate among all segments and is expected to grow 20.3% to a USD$49.4b market just in Southeast Asia - marking it the fastest growing market among major markets world wide (taken from Mixue IPO Prospectus). 

The growth has happened despite the economic downturn in China and China now has 486 000 bubble tea stores and experienced around a 40% growth in 2023. Given that growth, competition is fierce (more on that later). 

Nayuki Holdings

Peng Xin and Zhao Lin, a couple who met while studying at the Jiangxi University of Finance and Economics, founded Nayuki in 2015. Inspired by the success of Taiwanese bubble tea, they created stores that were more tailored towards the high-end/premium market in China and since then the company has experienced rapid expansion. 

In the first quarter of 2024, it had 1597 self-operated and 205 franchised stores. Due to rising nationalism in China, the company rebranded their stores to the Chinese pronunciation of Nayuki: Naixue in late 2022.

The company went public at the perfect time in June 2021 with net proceeds from the public offering being HKD$4,842.4 million. Since then the companies stock has been in a free fall, and as of writing the stock price is at HKD$2.26 - a 86.43% decline - and the market cap stands at HKD$3.88b. This is despite improving operations with revenues growing 20% in 2023 and the company achieving profitability. 

The valuation in general is quite low, being 0.73x P/TB, 0.7x P/S and less than 8x EV/EBITDA. Even assuming low growth, the company can deliver 10% returns for close to a decade. The founders still own 56% of the company. 

Why does the opportunity exist?

The current low valuation can be attributed to several factors:

• Hong Kong stock market performance: The Hong Kong stock market has been underperforming for a decade, with the current market level lower than it was in 2009 and nearly the same as it was in 1997, before the Asian financial crisis. This overall market sentiment tends to have a more significant impact on smaller companies like Nayuki.

  

• Intense competition: The bubble tea industry in China is highly competitive, with many players vying for market share. However, the market has not yet fully recognized the differentiation between these companies, which can lead to undervaluation of some brands. Just like fast food chains, bubble tea chains position themselves differently in terms of target audience, product offerings, and expansion strategies.

• Reliance on self-operated stores: Unlike its competitors, Nayuki has primarily relied on self-operated stores for expansion, only starting to franchise in July 2023. While this strategy allows for greater control over brand image and product quality, it has also resulted in slower growth compared to competitors who have aggressively expanded through franchising. Despite Nayuki's revenue growth of 20%, it has lagged behind its competitors in terms of overall growth.

• Lack of comparable public companies: Nayuki is currently the only publicly listed bubble tea chain, with its competitor ChaPanda set to list on the Hong Kong Stock Exchange on April 23, 2024. ChaPanda, officially known as Sichuan Baicha Baidao Industrial Co, aims to raise around HKD$2.46 billion at a planned share price of HKD$17.5, which would give them a price-to-sales (P/S) ratio of 1.4x – double that of Nayuki. This suggests that the market is still figuring out how to value these tea chains properly. 

• Lack of understanding from investors: The bubble tea market, while growing at a rate of 12% in the US and 8% in Europe per year since 2018, is still relatively underdeveloped in these regions. Additionally, the target market for bubble tea is typically 20-35 year olds, which may not align with the demographics of many institutional investors. This lack of familiarity with the industry and its target audience may contribute to the undervaluation of companies like Nayuki.

Competitors

The freshly-made tea shop industry in China is fiercely competitive, with several major players striving to capture a larger share of the RMB247.3 billion (approximately $36.5 billion) market. The top five companies in this sector account for about 40.2% of the total market share. Three of these leading companies – Mixue, Guming, and ChaPanda – have recently filed for initial public offerings (IPOs) to raise funds and expand their operations. ChaPanda swill list on the Hong Kong stock exchange on April 23, 2024.

As of September 2023, Mixue had the largest store network with 36,000 outlets, including around 3,000 stores in international markets. Guming followed with approximately 9,000 stores, while ChaPanda had 8,016 outlets. These companies have experienced impressive growth in recent years. In 2023, Mixue's revenue grew by an astonishing 46%, with profit margins of around 15%. Similarly, ChaPanda's revenue increased by 35%, with slightly higher margins of about 20%. These figures indicate that both companies have been successful in attracting customers and generating profits.

Most of these tea shop chains have relied heavily on franchising to rapidly expand their store networks. A staggering 99.8% of Mixue's stores and 99.5% of ChaPanda's outlets are operated by franchisees. In contrast, Nayuki has primarily focused on self-operated stores, which are owned and managed directly by the company. While this strategy has given Nayuki greater control over its brand image and product quality, it has also limited the company's ability to expand as quickly as its competitors, particularly in lower-tier cities where franchising has been a key growth driver for competitors.

However, Nayuki's emphasis on self-operated stores and its positioning in the high-end market have allowed the company to achieve the highest gross margins in the industry, at around 40%. In comparison, Guming's gross margin stands at 31%, while ChaPanda's is 35%.

Furthermore, Nayuki's selective approach to store locations and its premium positioning have enabled the company to generate nearly twice the daily average sales volume per store compared to ChaPanda.

Nayuki's most significant competitor is HEY TEA, another high-end brand that has recently adopted a franchising model to accelerate its expansion. Since November 2022, HEY TEA has opened an impressive 2,300 stores, establishing itself as the largest player in the premium freshly-made tea market. Customers generally prefer the higher end brands.

More details on Nayuki

 Target market and Store Ownership

Nayuki focuses on the higher-end market with its customer base primarily consisting of women aged 30-35, which is older than most other bubble tea stores. There is also a focus on healthier alternatives as demand is rising and they are working to bring no-sugar alternatives to the market. As previously mentioned Nayuki relies currently on self-operating stores.  

Expansion and Franchising Strategy

Nayuki has recently started expanding into Tier 2 cities and has minimal presence in Tier 3 cities. However, their recent openings in these cities have shown similar profitability to Tier 1 cities. Store-level operating margins are 19.6% for Tier 1 and Tier 3 cities, and 18.1% for Tier 2 cities. To accelerate growth in Tier 2 and Tier 3 cities, Nayuki began franchising in July 2023.

Franchise Growth and Agreement Updates

Franchise store openings have been slow, with only 104 franchise stores opened in Q1, which is traditionally the slowest quarter. To boost growth, Nayuki updated their franchise agreements in February 2024, reducing the investment requirement by half to RMB580,000. Compared to competitors like Mixue, which has the highest franchise investment requirement at RMB500,000, Nayuki's previous requirements were too high. They also optimized equipment space, reducing the required store size from 90 to 40 m2, providing more options while maintaining a premium feel. Currently, 400 prospective franchised stores are being processed.

Expansion Plans and International Growth
Nayuki plans to open around 200 self-operating stores in 2024, alongside a cautious overseas expansion and hundreds of franchise stores. However, they are currently behind this target. In 2023, Nayuki opened their first store in Thailand, with prices 20-30% higher than in China, which has been successful so far. They will continue to use self-operated stores in new markets and then utilize franchisees to expand further once they achieve scale.

Membership Program and Store Growth
Nayuki has a membership program with 4.7 million monthly users and a repurchase rate of 23.9% (members who ordered at least twice a month). In 2023, total stores increased by 506, and management expects higher growth in 2024 by making franchising more attractive.

Product Focus and Financial Position
Nayuki focuses on premium fresh fruit tea and is developing no-sugar alternatives to meet the growing demand for healthier options. The company is financially strong, with RMB2.98 billion in cash and deposits and no interest-bearing borrowings. Despite trading at low multiples (0.7x P/S and 0.7x P/TB), Nayuki is growing revenues at 20%.

The company has also been buying back around 5.38m shares in 2024. That isn't a great buyback, but it is a beginning. 

Risks

The risks are fairly obvious. Competition is fierce and if they fall too far behind or if their brand image gets damaged, they would suffer a significant amount of loss in sales. Furthermore the company operates in China and is listed on Hong Kong, so that is an additional risk for many western investors. 

Conclusion

In conclusion, Nayuki looks good here due to its current undervaluation, unique business model, and strong growth potential in the expanding bubble tea market. The company's focus on self-operated stores and premium offerings differentiates it from competitors, while its recent adoption of franchising positions it for accelerated growth. As investors gain a better understanding of the industry and Nayuki's long-term prospects, the company's valuation is likely to appreciate. Please always do your own research. 

https://www.ft.com/content/7cd22551-22cb-4777-8d4d-e79be48f143d

https://www1.hkexnews.hk/listedco/listconews/sehk/2024/0415/2024041500022.pdf

https://www1.hkexnews.hk/app/sehk/2024/106124/documents/sehk24010203325.pdf 

Hey everyone,

I got some great feedback to the first part of the Hong Kong Series, and I am happy to announce that I have finished my selection. The article will cover  the large caps stocks I bought in Hong Kong. Other than those 7 mentioned here, I bought another 17 stocks in Hong Kong. So be sure to subscribe to not miss an update. 

For the mid, small and nano caps, I will write another article or maybe even several as those stocks have minimal or no coverage at all and I will go more in depth. The companies mentioned today have ample coverage, but I found them of good value nonetheless.

Macro

But first, my commentary about Macro. There has been a lot of talks about rate cuts and stocks have gone crazy in terms of valuation. However because asset prices are rising including energy and gold - it shows us that rates are actually too low. It seems then that the market will force the Fed to hike this year. When that happens no idea, but it seems that we are in an "ignore all bad news" mood until then.

Palantir's CEO makes obscure comments

https://twitter.com/gurgavin/status/1767973145250533755

The CEO of Palantir basically said that short sellers love pulling down great American companies so they can snort Cocaine. A completely obscure and random comment for a company which trades at 23x P/S and that is up 192% since March 2023.

This kinda reminds me of the Lehman CEO wanting to "rip the short sellers hearts out" in a conference of September 2007. Not a great sign whenever a CEO comments negatively on short sellers. 

Stocks I passed on

There are two additional stocks that I passed on and that might be interesting to others. 

•  China Feihe Limited $6186.HK. They make infant formula in China and are cheap. However their earnings are on the decline and I don't see myself getting above 15% return a year here. 

• China Overseas Property Holdings Limited $2669.HK. It is not expensive, yet I struggle with shareholder returns here.

Large Caps that I actually bought. 

Since Hong Kong is probably the cheapest market in the world right now, for me it did not make sense to go bottom fishing, buying companies where the business has problems and hoping for a mean reversion. 

Instead I bought companies that are still very cheap, have had great shareholder returns in terms of buybacks and/or dividends and that have either have good growth in their field or otherwise a good competitive advantage. I also tried to diversify into different industries.

Tencent

An incredibly boring pick I know, but Tencent is something special. They have incredible IP in the form of WeChat and own a significant amount of game developers like Riot Games (League of Legends), 40% of Epic Games (Fortnite) and Supercell (Clash of Clans, Clash Royale) and a boatload of other great companies. They grew revenues at 7% last year, a decent amount given the slump in video games and margins have increased. 

16x EV/EBIT doesn't look that cheap at first glance. However that doesn't include the holdings that they have. They have several stakes in companies like Tencent Music Entertainment, PDD etc. The company also have spun of their JD and Meituan stake to shareholders already. Their operating profits increased 41% YoY excluding the gain on sale of the Meituan stake. has increased a lot in 2023 and they increased their buybacks and dividends. 

Now the company is not incredibly cheap compared to other that I have found, but it is a company that has (and I hate that word) a big moat. 

Postal Savings Bank of China

It is a bank paying over 7% dividends, trading at less than 0.5x P/B. They basically have no growth in earnings, but their non-performing loans are decreasing and as the economy in China recovers, the growth is more likely to return. In contrast to many other banks, they have a minimal exposure to the real estate market. The purpose of this choice is more in line with diversification and having some exposure to the general economy of China. 

Xiaomi 

This 52b market cap company, has now reached the third spot in total mobile phones sales. The mobile market is a tough market, and yet they were able to establish themselves as a major player. They focus mostly on the budget sector, but have recently pushed towards the higher end market. As a result margins have been relatively tho, however with them pushing towards higher end phones their operating margins have increased the last few years. 

One of the things that is holding them back was on the Software side. Samsung has a big lead with their One UI built on top of Android, which they have worked on for more than a decade. Xiaomi had a lot of bloatware on their skin, even with ads built into their operating system in certain parts of the world.  Instead of Mi UI they now have Hyper OS, which is a lot faster and includes less bloatware. Their push towards the high end has also included better cameras and components in general and Mrwhosetheboss -  a tech youtube with over 18m subscribers -  have recently compared the Xiaomi 14 Ultra to the Samsung S24 Ultra. The Samsung came out clearly on top, yet the signs are encouraging. Five years ago nobody would have even thought of comparing a Xiaomi with a Samsung. 

They have also entered the car market with the Xiaomi SU 7. which looks like a budget Porsche Taycan. How successful it is will be seen.

The company had 10% revenue growth in 2023 and 50% operating profit growth, and trades around 13x LTM EV/EBITDA. In contrast to the Postal Savings Bank of China, which derives their whole revenues from only China, Xiaomi has 44% of their total revenues coming from the international markets. 

They are also the only company that I bought in Hong Kong that doesn't have great shareholder returns in terms of buybacks or dividends. 

Haidilao International

A restaurant company, that is mostly known for their hot pot chain and has around 12b market cap. The company had 31% revenue growth in 2023 and more than doubled their profits, despite only opening 3 new restaurants due to a big increase in table turnover rate. The company trades at 15x EV/EBIT and is paying a 4.7% dividend. I have looked at the company and don't expect a lot of growth unless they expand the amount of stores they own, but I don't see the popularity going down, given the high demand. Given the low valuations for their growth and decent shareholder returns, it will probably do well here. 

First Pacific Company

This 2b market cap company is a holding company with diversified revenue streams. Their best known brand is Indofood, the largest noodle company in the world with a significant market share in Indonesia. The company trades at 7x EV/EBITDA and a significant discount to Book Value. That discount can in my eyes be ignored, as holding companies usually always trade at a steep discount, even excellent ones like Exor. They are paying a 6% dividend and are repurchasing shares (although not a lot). I find it very interesting because it quite hard to get a proper exposure to the Philippines and Indonesia. While they are listed in Hong Kong, they basically have no exposure to Taiwan or China from their revenues. 

Kingsoft Corporation

The company with around 4b market cap mostly sells WPS office, an alternative to Microsoft Office. They had 12% revenue growth in 2023, with operating profit increasing 20% and they trade at 7x EV/EBIT and 1.4x EV/S. Other than them having a decent gaming arm as well, a big part of their earnings are subscription based.  It isn't the prettiest software business one could find, but with so much of their revenues being reoccurring and margins improving, i can see it doing a decent 18% CAGR over the next few years. 

Fu Shou Yuan International

A burial service company with around 1.4b market cap. It trades at around 6x EV/EBIT and profits increased 20% in 2023. Including the special dividend the company is paying a 7.5% dividend on current prices. They have bought back a minuscule amount of shares, but the returns of the dividend alone would be decent given that they have a good balance sheet. 

The next update will follow soon. 

So I went through the financials of every stock in HK, searching for companies that were either incredibly cheap, had great Free Cash Flow and Book Value growth or exceptional shareholder returns. 

After sorting through the companies a few times, I started to look at companies qualitative as well.

Today I will show you which ones I passed on, that might be interesting to you. 

Most of the time the reason to not buy the stock were me not being knowledgeable about the industry, or me being unable to see the company delivering 20%+ CAGR in the next years. 

However there are exceptional companies among those, and some of them are well suited for a more defensive portfolio. 

So here are all the companies that I found interesting, but passed on:

$YUMC: It doesn't look expensive compared to US restaurant chain operators, but compared to other Chinese one it is nothing extraordinary. The ROE number looks decent, but nothing out of the ordinary. Their combined share repurchase / dividend program is also bang on average for many Chinese/HK operators. Very defensive company and probably a decent return from here. 

$8512.HK. Looks great at first sight until you realize that management pays itself absolutely insane boni. So unless you are certain that management will create more value, than they pay themselves it is probably not interesting to most. 

Greentown Management Holdings $9979.HK. Seems like a decent company, but many property companies are similar in terms of shareholder returns and valuation. I want to find the gems in the HK, not one among many.

Travelsky. $696.HK seems like a decent company, but management seem to not really care about shareholders as is so common in HK. 

 Xinhua Winshare Publishing $811.HK. Less dividends than many others. Low growth. 

China Medical System Holdings $867.HK and Kangji Medical Holdings $9997.HK. The numbers all look good, but I have no idea how to assess their market. For someone in the industry, these could be very interesting. 

Sun Hing Printing Holdings Limited $1975.HK. Despite having seemingly better fundamentals than Lion Rock Group on the first sight, their largest customer amounts to 72% of all their revenue. A huge risk.

2331.HK Li Ning. Sports is generally quite complicated and given the growth rates, it is hard to get a decent margin of safety with the current market cap. East Asia Stocks recently published a deep dive into it. 

East Asia Stock Insights

China Sportswear (Part 3: Li-Ning)

Li-Ning was established in 1990 by the legendary gymnast Li Ning, becoming China's first well-known sportswear brand. Li was a gymnast who won six medals at the 1984 Summer Olympics, cementing him as one of the most decorated Chinese athletes of all time…

Read more

2 years ago · 24 likes · East Asia Stock Insights

$388.HK HK Exchange. The company isn't expensive, but they are hoarding cash and seemingly not worried about returning that too shareholders. Another problem is the SFC which doesn't really help the HK Exchange.

CK Hutchison $001.HK . While the 7% dividend seem enticing, it seem the rest of the company is in a bit of a rut. P/TB also not too cheap. It probably does well from here, but it is below my hurdle rate. An exceptional company for cheap, with the majority of earnings not in China/HK. 

BYD $1211.HK . I think that the EV/Hybrid industry will get more and more competitive and as a result drive down margins for everyone - similar to what the car industry already is. I think that BYD will be the winner, but with how much earnings it will emerge I can not predict. 

 Shandong Weigao $1066.HK. Their growth seems to have stalled and the valuation would be quite expensive for that.

Perfect Medical Health $1830.HK. Growth has stalled, which would mean that their ongoing dilution would seriously start to impact shareholder returns.

China Tobacco $6055.HK decent growth, but margins are nothing special and i don't see how I get a much better return than BTI which is more diversified.

Wasion Holdings. $3393.HK. I expect much more competition coming and their valuation and shareholder returns are nothing to boast about.

Anta Sports $2020.HK. Seems like they have exceptional brands, but they are only cheap if you assume that the revenue growth returns back to a very high level. 

Man Shing Global $8309.HK. Difficult industry, stagnation in growth and no shareholder returns.

Sany Heavy Equipment $631.HK Seems to be over earning a bit and shareholder returns are just decent. I have quite a bit of commodity exposure and this is another play on that with heavy machinery - so its a pass.

$327.HK Passing on Pax Global Technology. They have quite a bit of customer concentration in Brazil (which I am exposed to via an ETF). For me the whole payment industry is quite risky. Add that it adds exposure where I already have enough, and I pass

Goldpac Group $3315. Same as with Pax, it is in the payment space, which I find endlessly complicated.

Dream International $1126.HK Seems to have heavily over-earned on their margins and I find it hard to project demand here. Does it increase, does it decrease? No idea

$189.HK they have had tremendous growth, but it seems that is stalling, and chemicals are notoriously cyclical. These could be an opportunity. 

$28.HK Tian An China Investments. Too many related party transactions, that make me go mhm..

China Foods $506.HK. There are so many other food/beverage companies that have similar valuations, but better shareholder returns.

Zhejiang Expressway $576.HK Warren Buffett something something toll roads. Me: Not enough upside, but it could be interesting for a defensive investor. 

I will publish the ones that I did buy and a few more I passed on soon. 

Hope you all had a great new years eve celebration and great returns in 2023. While the former was true for me, the latter wasn't.

Looking at the long only portion of the portfolio, I had excellent returns at 61.87% and yet despite that my overall portfolio performance clocks in at -74.84%. So what went wrong?

What went wrong

I came into the year widely bearish tech and more fraudulent companies. But the worst companies went up. Despite technicals screaming against me, I refused to close my short positions. While Nvidia is overvalued (and I got the thesis wrong), the fundamentals increased by much more than I anticipated - but my refusal to quit the shorts was more on companies that showed the opposite.  Tesla, Affirm, Upstart and Coinbase all showed fundamentals and added risks (like the Well's notice for Coinbase) that were even worse than I anticipated. Yet the stocks doubled or even quadrupled.

While I reduced some exposure throughout the year, I began revenge trading hoping for a quick stock reversals and a topping of the equity market that never came.  If there was a book on what not to do when trading and investing, I would have checked every single item this year.  The disconnect for me, was the refusal to let price guide my investment decisions on the short side. 

If you go long a stock, price matters only in the sense that it should be cheap enough.  Business fundamentals and the valuation you bought at decide your future returns. That isn't true for the short side.

Irrational companies can trade at even crazier prices, and you have to let the price decide on when to close out your positions and not the business fundamentals. That turned out to be incredibly difficult for me.

So do I stop shorting? I tend to evaluate methods in investing over a three year period.  The first year of shorting was excellent, the second disastrous.  I have implemented a few things, such as that no single short position induce more than a 3% drawdown on my portfolio and that I diversify the factor exposure of my shorts more heavily. 

While the performance and mistakes were terrible this year, I think it is important I made them so early. Everyone should push their circle of competence as hard as possible at the start of the investing journey to find out where their limitations lie.  The push from my side was a bit too hard and more like a push off a cliff, but I now know where my potential pitfalls are. 

What went right

While my performance on the short side was abysmal, on the long side it was exceptional. I have a few small positions that are down, but except Glencore nearly all of my bigger positions did well.  Even more so, it wasn't just a single position or sector but multiple. 

Throughout the year Petrobras had an exceptional return. I started to trim in November and am now out of the position. Given the valuation it still has room to run, but sentiment isn't as bad anymore. I indirectly own Petrobras through a Brazil ETF.  For Zigexn, the Japanese roll-up company, I sold very close to the top and re-bought the stocks when it went below 500. My Argentinian land corporation Cresud had an exceptional year even before the election when i closed out most of my position. Stellantis also did very well.

I also managed to buy the bottom for Global Atomic. The first time I ever managed to buy at the lows of a stock. The stock then nearly doubled and I have just recently sold.  In October I re-entered the coal space with a purchase of Sumiseki Holdings doubled and in early December bought two Mongolian coal companies: Mongolian Mining and South Gobi Resources. 

In contrast to last year, I managed the scaling in and out of positions much better -  leaving less performance on the table than before. I doubt that I will get that result on the long side next year, as the rising market lifts all stocks, but I hope that I can generate a good return nonetheless. 

What I own now

So at the short side, I currently have no positions. I still think that companies like Upstart, Coinbase, Affirm and another host of unprofitable tech companies are good fundamental shorts - but I will wait for the technicals to confirm that view. 

I am very bullish Chinese and Hong Kong stocks now.  Sentiment and valuations are both extremely low, with many companies trading as low US stocks did in 2009.  Furthermore economic numbers and even earnings have started to recover in the last two quarters and will probably continue to do so in 2024. I recently went through all 2700 stocks in Hong Kong to find a few gems. After the first pass and reading dozens of annual reports, I have around 40 companies left. I will post an update as soon as I combed through them a second time. With the exception of Alibaba, Postal Savings Banks of China and the already mentioned Mongolian Coal companies - I don't own any other companies listed in Hong Kong.I do have additional exposure to China with Lufax and Huya. 

Zigexn is another core position of my portfolio and while I think most of the run is done now, I still hold Sumiseki Holdings.  In terms of mining companies, Glencore is still exceptionally cheap and I also bought Sibanye Stillwater after the big earnings drop. Regarding Brazil, I still own a small position in a diversified ETF. 

Due to the recent conflict in the middle east, I cut most of my oil exposure. The thesis for Petrobras was that oil would not crash horribly and that the valuation and sentiment was too low given the history of Lula and the company. Now the picture is a lot different. Political risks that involve several countries are impossible for me to asses, so with the exception of Rubis SA I have no exposure to oil companies.

I have made many mistakes, but I think learning from them will increase my returns in the coming years. 

I hope you had a great 2023 and an even better 2024. 

today I am just writing a short article. If you enjoy these shorter thoughts as well -  please let me know!

Ben Graham and the GEICO dilemma

Just as I am working through the newest edition of Security Analysis, slogging myself through the fixed income portion in order to understand more how the economics of bonds work, I saw an argument against the philosophy.

Ben Graham made more money with GEICO than all his other investments combined.

In contrast to the article, in my opinion this is by design of the philosophy. Value Investing strives to lower the business risks of operations, and maximising the return by buying cheap and with enough margin of safety. Great opportunities are rare, so most of the companies one is buying with the strategy are not of the highest quality. But sometimes they are.

Businesses are constantly evolving, so given the diversification of Graham's approach companies will turn around. Graham doesn't tell you to sell great companies. If a stock thus improves fundamentals as well, there is often no reason to sell it unless it is at a high premium. By using Graham's value investing approach one makes sure to not make moonshots, but instead let the companies prove themselves to the portfolio.

At the same time the returns through mean reversion and sentiment have proven to be excellent throughout history. The GEICO argument then is an endorsement of Graham's approach - not a detraction.

Update on Unity

John Riccitiello, who was responsible for the licensing mess is stepping down as CEO and is replaced by James Whitehurst, who was CEO of Red Hat since 2007 until the acquisition by IBM for $34 billion. The market approved and the stock bounced more than 6% moments after the announcement. That move was not to last though.

The stock fell and even closed down red, a sign that while the CEO change might be the best for the company, it can't make up for the lost trust of hundreds of game developers and studios. With the stock down over 20% in just over a month, the easy picking have been done.

Macro like Druckenmiller

Stanley Druckenmiller is among my biggest investment icons. In contrast to Buffett his investment style does depend on macro economics and that while mostly ignoring most common economic indicators. While he is surely aware of all the latest macro data, he said that they prefer a bottom up approach. Looking at the investment calls of companies in housing, trucking and retail and then extracting information about the next 12 to 18 months. 

In order to replicate that, I finally found a workflow that automatically summarises earnings calls for me and extract information about customer outlook, macro data and the outlook of the company itself and throws that into a database. I copy the text and remove duplicate information form the same company. Looks pretty good no?

Cheap banks in emerging markets (and the UK)

A banks earnings potential is dependent on the combination of its book value and the return on equity. Return on Equity looks best when the economy is booming. It ignores downside risk.That is why I focus on book value and add a big margin of safety on top of that. One is betting, that things don't get worse.

I haven't done any deep research into the companies themselves, but here are a few banks that look interesting and trade below 0.8x P/B often significantly so. If you have any research into those companies, I would appreciate if you could link it to me.

• Halyk Bank: Bank in Kazakhstan

• Bancolombia: Bank in Colombia, Panama, El Salavador, Puerto Rico and Peru.

• Postal Savings Bank of China: Chinese bank with low exposure to the real estate problem. 

• Lloyds Bank looks very cheap here at 0.63x P/B

• Banco de Brasil. A Brasilian bank that is up 65% YTD, but still pays over 10% dividend and has excellent ROE. 

• Ken Griffin recently did an interview with CNBC. It is quite interesting. here is the link.

• Exor is continuing to show why they are a great company. Their earnings have been stellar and they announced a buyback to close the discount to NAV.

• While Petrobras is still the biggest position in my portfolio, I have diversified some of the recent gains into OMV and Orlen. They are both oil companies with refining capacity and now have a historical discount to themselves similar to what Petrobras had a year ago.

• I have sold Zigexn after the big run up, but after a 26% correction it is starting to look interesting again. Their latest earnings have been exceptional.

• I have also bought 2025 Calls for BTI. Those traded at an implied volatility of 3% last week, while the average annual volatility for British American Tobacco has been much higher.

Problems at Unity

The video game engine developer Unity (Ticker U) has recently changed its pricing to be based upon downloads. This is a huge change. First it can be abused and second is that the pricing increase will not just affect new games, but old games as well. Many developers thus are fighting back and said that they will stop using Unity's engine in the future. While Unity backpedalled and said that only one install on a new device will create fees, it broke the trust that they had between them and the developers. Given that Unity had negative earnings, it was just a matter of time until they had to adjust the fees. However in the way they did it, they angered everyone in the process. The CEO John Riccitiello was the CEO of EA until 2014 and has often been associated with the fall of EA. What is more surprising (or maybe not), is that the stock is only down 5% the last 5 days and is still up 4.6% in the last month. Even more, BofA upgraded Unity a day after the news broke. It shows that the buy side has no time to play video games, because this is big news for their customers. While Unity has been a staple game engine for more than a decade now there has been more developments. Other than the game engine behemoth Unreal Engine from Epic Games (Tencent owns 40%), open source engines have made a huge leap, for example Godot which is the game engine for the successful indie game Brotato. It will be interesting to see the development of this, but I bought 2025 Puts given that they are quite cheap.

Adding diversification

Global Atomic

Those that follow me on Twitter know that I have added several positions in the last few months. The biggest one of which is Global Atomic, which is already up 50% since I bought it, but is still cheap. It has one of the best Uranium deposits in the world with a full permit. However the mispricing comes due to the political risks with the military coup in Niger. The project has continued to advance,,, but mining has been put on hold as borders from Nigeria and Benin are closed due to sanctions. The new minister said that they will follow the previous governments mining agreements. They also have a steel recycling plant which produces Zinc oxide, which will return to profitability in Q4 after production halts due to the earthquake in Turkey. At 30m EBITDA for the steel recycling company using competitors' valuations and the cash they have on hand - one pays around USD$ 120m for one of the best Uranium deposits in the world. Insiders have been buying.

Gulf Keystone Petroleum

I  missed GKP.L (Gulf Keystone Petroleum). After buying it when the news broke that Kurdistan would stop oil production, I sold it on the bounce and haven't looked at it since. It has declined, but fundamentally it is incredibly cheap. If oil production would continue, it trades at around 0.5x P/E. Risks were high though as an agreement between KRG and the Iraqi government failed. On stocks that have political influence on the price, I often found that the technicals show a bottom very well and so they did here.  I marked where I would buy it (the violet line) about a week ago. However I did not set any price alerts and thus completely missed a 20% up move in 2 days. The company is still incredibly cheap, but it shows that if I have a fundamental and technical reason to buy this, with a price in mind -  I have to set the alerts to not miss it.

Jewett-Cameron Trading Company

This is a nano cap at 16m market cap. The company has 23m in net assets comprising mostly of inventory. Since the early 2000s, the company had about 9% on Return on Assets and 12% Return on Equity per year. They hold their real estate at cost on the balance sheet, so while they probably won't sell it, there is a decent margin of safety there. They have a good earnings history with very moderate growth. The stock decline has been mostly due to the earnings compressions the last few quarters. Given that the price is now around 2015 levels while the book value has doubled, I have the fair value at around 35m market cap if earnings normalise back to historical levels (which I think they will).

Rubis SCA and Bakkafrost

A french energy service company that owns many assets like terminals, ships and energy storage. Most of their money however comes from energy distribution. There they operate in more niche markets like Africa and the Caribbean Islands having close to a monopoly. It pays a 9% dividend yield and is the cheapest it has been since 2009 from a valuation perspective and the price is at 2012 levels. Given that it trades under book value, I bought the company.

I also have bought Bakkafrost, the salmon company listed in Norway but operating in Scotland and the Faroe Islands. They have been sold down due to scaling problems and Scotland and a potential tax on Norwegian salmon farms (which would not influence Bakkafrost). It is also the cheapest it has been in a decade, and salmon prices are still high with demand growing much faster than supply.

Looking at Methanol

A commodity I find interesting is Methanol. After a huge squeeze in September 2021 the price has gone steadily down until recently. The company Methanex, which is the biggest producer of Methanol in the world doesn't look too expensive, but I have to do more research into the space. So if you have more resources on it, I would really appreciate it.

Today starts of with a terrible pun. IBRK finally enabled access to the Praha Stock Exchange. There are only 28 companies listed, so it is quick and painless to check out. There were no hidden gems that I found, but given the small amount of stocks, it is definitely worth checking out.

• Petrobras released their earnings, paying a 3.5% dividend yield for the quarter and announcing a 1.5% buyback for Petrobras A shares. While it is a decent result, as the total shareholder yield YTD is 12.5% -  the big discount to many international oil companies has closed. OMV, the Austrian oil producer is now cheaper than Petrobras. I have reduced my exposure a bit to Petrobras, but it is still a big position.

Anime

In the spirit of Peter Lynch to know what you own - I am taking a journey through the world of anime and manga. For those that are unaware, manga are Japanese comics, and Anime are Japanese animation films or series. In contrast to most of the Western Animation tradition these are not just for Children, but can span any topic from erotica, action to horror and thrillers.

Anime has went from a niche product outside Japan, to a huge success around the world. Not only are anime series thriving, but anime films have become huge blockbusters, with Your Name earnings 357 million worldwide in 2016, ranking 22nd overall.

Here is a great interview with the creator of Your Name about his latest film Suzume.

Ghibli Studios who made masterpieces like Spirited Away used to be owned by a public company, but alas its private now.

• Sony is one of the biggest players in the space. With Crunchyroll - an anime streaming service - having 5 million subscribers just in the US alone and several high profile studios that produces Fairly Tail, Spy X Family, Sword Art Online, the Demon Slayer movie and many more. However the whole segment is just 13% of revenues for Sony (and that includes western films that are produced by Sony Entertainment as well), so it is far from an anime pure play.

• Sega Sammy Holdings is a company that was formed by the merger of video game giant Sega and Sammy corporation who makes pachinko machines. Sadly the company does not break down the differences between their games and their TV/Anime side. While their IP in terms of games is impressive, the strongest anime IP is Detective Conan and it pales in contrast to something like Sony. It might be an interesting pick in terms of video games, given that it trades at 8.76x EV/EBIT - but it isn't a great pick for Anime.

• Fuji Media Holdings is a broadcast holding company that owns several business included TV assets and Hotels. They for example aired One Piece. However given that Hotels and other sectors are bigger than media and content  -  I will pass.

• DLE Inc is a animiation studio that is probably most known for the series Eagle Talon. Asahi Broadcasting Corporations owns more than 50% of the company, but is quite diversified in radio and television -  so I will focus on DLE. With a 76m $USD market cap it is rather small as well. The company is quite expensive tho. At a 4x P/B all the while the company is bleeding cash. It seems to be only held up in the hope that Asahi Broadcasting will acquire the rest of the company. Pass

• Nippon Television is another company that has a big exposure to anime and anime broadcast. At 0.4x P/B it looks cheap, but that includes a lot of the broadcast equipment. In terms of earnings the company is mostly in a slow decline. The company does however have higher current assets than total liabilities. It does look cheapish - but due to the lack of quality in IP and that it isn't cheap enough.

• Sanrio: Most known for owning the brand right to Helly Kitty, which is an extraordinary brand. But at 35x EV/EBITDA, the company is just way too expensive.

• Kadokawa is a media conglomerate. They have produced several great series/movies like Overlord, Your Name, Steins;Gate and many more, they also own the majority of FromSoftware, the company responsible for the Darks Souls series and Elden Ring. The company trades at 2.3x P/B but is rather expensive when you look at earnings. It is too expensive for a value play, but too low quality to fit into the growth basket, so I pass.

• Toho is another media conglomerate. Boku no Hero is on of the strongest IP in he industry and with Akame ga Kill, Spy x Family, and Haikyuu!!, they have consistently provided great quality the last decade. The company is consistently profitable and trades at a EV/EBIT of 18x - but is rather expensive on a P/FCF basis. So I pass

• IG Port is a rather small company with 100m USD market cap . They are known for series like Guilty Corwn, producing Haikyuu! with Toho, as well as Psychopass. Their Wit Studio produced the Spy x Family and Attack on Titan. At first sight it also looks cheap at 8x EV/EBIT, but it looks like they over-earned the last twelve month compared to the usual trend in their operating earnings. The more I learned about the content business, the more I realised that it is very cyclical. However in contrast to something like oil, where you can generally look at the supply and upcoming project - it is impossible to forecast the demand of that content as it can be so different. I pass this one too.

• Medialink is an anime distributor in China, Hong Kong, the US and Taiwan. The company listed in May 2019 and had decent growth since then. They own Ani - One, which are several channels on Youtube in different languages that total several million subscribers. They also co-invested in a Taiwanese movie called "My Heavenly City", which will be released on 15th September 2023. The company for example offers brand deals for example Coc-Cola Zero Sugar Blast x Bleach. I have to do more research, but it looks interesting on first sight. It also seems to be less cyclical than most of the content creators and future success seems to more rely on studio connections.

• Toei Company: is the company with the best IP owning Sailer Moon, One Piece and Digimon and many others. Its growth both in revenue and margin expansion are exceptional. It is not a cheap company but the quality speaks for itself. I have set a price alert at 20% lower form todays price to revisit it. 

Google Notes Script

I have my own Google Sheet, where I add companies to watch out for. I have tried Journalytic, but found that I need daily change data -  so see if there big movements, rudimentary data and most of all international tickers like Hong Kong and Japan. 

I have added a Menu with Stock Notes, which opens up a new menu -  where I can add the date, the ticker and the notes. It then saves the notes into a new worksheet. I then use a script to search for the ticker and display the notes for the ticker, sorted by date. You need to create a new sheet in the current workbook and then rename it to "Stock Notes".

To add it go to Extensions -> Add Scripts.

First one needs a new file and rename it to "sidebar.html".

These are the contents of that sidebar.html.This is what displays the sidebar in order to add the notes. It allows you to add the ticker, the date and your notes on the stock

<!DOCTYPE html>
<html>
  <head>
    <base target="_top">
    <script>
      function init() {
        document.getElementById("date-input").valueAsDate = new Date();
      }
    </script>
  </head>
  <body onload="init()">
    <h1>Add Stock Note</h1>
    <form>
      <label for="date-input">Date:</label>
      <input type="date" id="date-input" name="date-input">
      <br><br>
      <label for="ticker-input">Ticker:</label>
      <input type="text" id="ticker-input" name="ticker-input" required>
      <br><br>
      <label for="note-input">Note:</label>
      <input type="text" id="note-input" name="note-input" required>
      <br><br>
      <input type="button" value="Add Note" onclick="addNote()">
    </form>
    <script>
      function addNote() {
        var dateInput = document.getElementById("date-input").value;
        var tickerInput = document.getElementById("ticker-input").value;
        var noteInput = document.getElementById("note-input").value;
        google.script.run.addStockNote(dateInput, tickerInput, noteInput);
        document.getElementById("date-input").valueAsDate = new Date();
        document.getElementById("ticker-input").value = '';
        document.getElementById("note-input").value = '';
      }
    </script>
  </body>
</html>

Then you then need to create a second file in Apps Script called Code.gs. This does several things. The first one, is that the onOpen() and showSidebar() function allow the sidebar that we created with the HTML be actually displayed in the sheet.

Second it creates the addStockNote() function, which after clicking "Add Note", adds the notes to the spreadsheet and parses the date, so it can get sorted easily afterwards.

It also adds the getSortedNotesByTicker() function. We need that function in order to get the notes of a single ticker into our sheet. It also sorts it by time. Once you pasted it, press Run on the Code.gs file. It will ask you for the permissions of your Google Account. You have to accept that.

function onOpen() {
  var ui = SpreadsheetApp.getUi();
  ui.createMenu('Stock Notes')
      .addItem('Add Note', 'showSidebar')
      .addToUi();
}

function showSidebar() {
  var html = HtmlService.createHtmlOutputFromFile('sidebar')
    .setTitle('Stock Notes')
    .setWidth(300);
  SpreadsheetApp.getUi().showSidebar(html);
  html.append('<script>document.getElementById("date-input").valueAsDate = new Date();</script>');
}


function addStockNote(date, ticker, note) {
  var sheet = SpreadsheetApp.getActiveSpreadsheet().getSheetByName('Stock Notes');
  if (!sheet) {
    sheet = SpreadsheetApp.getActiveSpreadsheet().insertSheet('Stock Notes');
    sheet.appendRow(['Date', 'Ticker', 'Note']);
  }
  var parsedDate = new Date(date);
  var formattedDate = Utilities.formatDate(parsedDate, SpreadsheetApp.getActiveSpreadsheet().getSpreadsheetTimeZone(), 'yyyy-MM-dd');
  sheet.appendRow([formattedDate, ticker, note]);
}

function getSortedNotesByTicker(ticker) {
  var sheet = SpreadsheetApp.getActiveSpreadsheet().getSheetByName('Stock Notes');
  if (!sheet) {
    return 'No Stock Notes sheet found';
  }
  
  var data = sheet.getDataRange().getValues();
  var notes = [];
  var upperCaseTicker = ticker.toUpperCase();
  
  for (var i = 1; i < data.length; i++) {
    if (data[i][1] && data[i][1].toUpperCase() == upperCaseTicker) {
      notes.push(data[i]);
    }
  }

  if (notes.length === 0) {
    return 'No Notes';
  }
  
  notes.sort(function(a, b) {
    var dateA = new Date(a[0]);
    var dateB = new Date(b[0]);
    if (dateA > dateB) {
      return -1;
    }
    if (dateA < dateB) {
      return 1;
    }
    return 0;
  });

  var output = '';
for (var j = 0; j < notes.length; j++) {
  var formattedDate = Utilities.formatDate(new Date(notes[j][0]), SpreadsheetApp.getActiveSpreadsheet().getSpreadsheetTimeZone(), 'yyyy-MM-dd');
  output += formattedDate + ' | ' + notes[j][2];
  if (j < notes.length - 1) {
    output += '\n';
  }
}
return output;
}

In the sheet, where you want to have the overview. Add the =getSortedNotesByTicker(Ticker). It takes the ticker input and gets all the notes on that ticker sorted by date. I made it, so it would read the tickers from the A column.

That is it. I hope you found it useful.

Long time no see. I have not written for some time now with the Omaha visit, another holiday, the nice weather and me mixing/recording a song for my metal band. In Omaha I attended many events and met great people. To make a long story short -  it was awesome. I thoroughly enjoyed talking with most people and the side events were more fun than the actual Berkshire AGM. If everything works out, I hope to attend again next year.

Short thoughts

• Looked at DOCS.L and FEVR.L during the flight to the US. While decent companies, both are too expensive given the risks in apparel or the implied growth rate of Fever Tree in the valuation. Dr Martens declined 30% since I have looked at it and now looks quite interesting. Had my fair value at around 1b market cap.

• Analysing culture is useless in my opinion. Culture is a result of the business model not vice versa. As the business model changes, so does the culture

• Gabelli hosted an event in Omaha, so I had a look at their stock. Gamco Investors is quite expensive and should be at around 350m in market cap given their AUM.

• Games Workshop (GAW.L) is an excellent company, but vastly overpriced in my view. Would buy it with a market cap of 1.8b, not at today's prices, which is nearly twice that. The reasons for my conservative valuation is the already excellent monetized fan base and competition from cheaper brands and 3D-printing.

• Petrobras confirmed a dividend of $0.76/share for Q1. A 7.5% payment for a single quarter. That is quite a bit better than my conservative estimate of 18% for the full 2023. I still think the company is cheap there and plan to reinvest the dividends.
  

Exor's public portfolio

One of the most fascinating companies is Exor. With Elkan being the CEO they own part of Stellantis, Ferrari, Juventus, CNH, Institut Merieux,Iveco, The Economist and a bunch of other companies with a great track record.

In their last letter the CEO highlighted Matteo Scolari, who previously worked at Eton Park as a hedge fund manager, and took over the public investment fund of Exor in 2015. Since then he managed a 19% annualised return with no down years. Impressive.

Sadly we only know a small part of his portfolio. According to the annual report, their biggest positions should be in Gold miners. If those or other holdings are outside the US and they don't own more than 5% of the company -  we will never know the position. Despite that, those that we do know, are exceptionally interesting.

It seems that they invest into certain themes or factors (Gold, Innovation, Uranium), when they hit deep value (like Valaris that they owned  nearly directly after bankruptcy) or that have reached sentiment bottoms. Those sentiment bottoms are usually traded quickly, with deep value being held longer.

I will try to find out more about their investment style.

Wading through the Austrian Stock Market

I have recently looked at the stock market from my home country: Austria. At first glance the market looks cheap, given that Austria is around the 30th largest economy in the worth with the 12th highest GDP/capita, and a Shiller PE of 11. However on a closer look it becomes clear why. Companies bogged down by bureaucracy and a big exposure to Eastern Europe and Russia. 

I went through all companies with their primary listing in Austria or that are from Austria, but are listed somewhere else and read each and every single annual report. I did it to challenge myself, but it can only be described as investor masochism. Despite only finding two companies that I would buy at today's prices - and not a single one I actually bought (due to having too much exposure to oil already), I learnt a huge amount. For example, I hate analysing banks and insurance companies, and that I would only buy them when they are outrageously cheap (like Fairfax a few months ago at 0.6 P/B). There is no visible process in my investing prowess and that can be frustrating. Combined with my stagnant portfolio - it is an exercise in patience and persistence. It is amazing how little process you see, for reading more than 80 annual reports. 

I don't want to leave you hanging tho. There are several companies that are very interesting even tho I would not invest in them at current prices, or because they don't offer a big enough discount -  that could be interesting for an investor with a different approach than me. 

Telekom Austria: A super stable cable/mobile provider company that is not too expensive and has a potential value unlock by creating a spinoff for their mobile towers. Returns are probably decent, but too little torque for my taste. 

Erste Bank: Decent numbers, with low growth and a stable customer base. It doesn't clean my hurdle rate, but if I were able to retire tomorrow, I would probably own it. 

OMV: Was one of the companies, I would actually buy at this level. However I have enough oil exposure in my portfolio already, and I see Petrobras as the company with more potential upside due to the historic discount compared to their own valuation. 

Mayr Melnhof Karton: This is probably the best managed public company in Austria. The price has come down significantly in the last few months. It is still a bit too expensive for me, but I can see it doing decently over the next decade.

Schoeller-Bleckmann is the second company I would buy at those levels. But as it is another oil exposure, I pass. 

That is it from me. I am currently working on the company Focusrite and an overview of the whole audio production space (including private players) and on looking at companies that produce or distribute anime. So subscribe if you want to read that. 

Hope everyone had a great quarter. I will be in New York from the 28th. April to the 02nd May and in Omaha after that for the Berkshire meeting. So if anyone wants to meet up either in NY or in Omaha, I'd be happy to go for a few drinks.

Today there are quite a few topics

• Q1 Review + Current Portfolio

• Looking in detail at the Shitco Index

• Oil producers in Kurdistan

• Lion Rock Group Holdings Update

Anyway, my question for you is regarding the frequency of the articles. I mostly write what comes to my mind, with no publishing schedule. Sometimes I write a single article in a month, sometimes it's three and they come whenever.

What would you prefer? Regular articles or is the current non-existing schedule a (hopefully) welcome surprise?

Q1 Review -40.2% YTD

If there is a list of things that you shouldn't do in investing -  I did them all. As the market started to recover, I disregarded the technicals and risk management rules.

For example I had big short positions. Usually when a stock that I am short in goes up 10%, I cover 25%-50% of my position. That way, I can lose 40% on a short. That sounds a lot, but given the usual sizing of my shorts, that is not a big problem. Well I disregarded that rule completely and instead doubled down. One of Paul Tudor Jones most recognizable quotes was "Losers average losers", and boy did I increase the short position instead of decreasing it.

Additionally I practiced diworsification. I added lots of small short positions -  which was the right idea -  but did not decrease the ones that I was now concentrated in. Add some draw-downs in energy companies and the draw-down was complete. In February I changed my approach, closing 95% of my short position and paying more attention to risk and technicals. Since then my portfolio is basically flat, going up and down a few percent each week.

The reason why it took me nearly a week to write this review, is that I calculated my returns if I held myself to my usual risk management rules. And the difference was astounding. I would have had a draw-down of just 16.32%. A stark difference that shows the brutality of the market and why rules are important.

I will spare you the quotes of how it's a battle and a lesson in humility. It's neither.
It was a lesson in stupidity that now probably takes me 2-3 years to correct. Like Druckemiller in 2000 who shorted the tech stocks, and then reversed to a long position at the exact top, I knew what to do -  I did the wrong thing anyway. Emotions restricted me from doing the right thing and they switched my brain off.

Well lesson learned.

Current portfolio

As I said I reduced my short position significantly. I am still short a few companies, including Coinbase, Apple, CACC, CRM, Doordash, Digital Realty Trust, IBN,First Solar, Nvidia, Micron, Plug Power, RCL, Rivian, Sunrun, Spotify, Trupanion and Tesla - but these are all in such a small size that they could be seen as tracker position. They could 3-5x and not hurt my portfolio too much. I am patiently waiting on when to short again, but it isn't the time yet.

On the long side there has been quite a bit of movement. I closed my coal positions after the run-up after the BTU earnings. That turned out to be the right decision as they declined heavily. Thanks Emil for helping me time that one. I trimmed the Japanese basket to just two positions: Zigexn which is now one of the oldest positions in the portfolio and Z-Holdings. I am planning to go in depth for Japan in the next month, but over 3000 stocks are quite the hurdle.

I still hold Lion Rock Rock Group Holdings, which appreciated nicely after the latest results (more to that later) as well as Gravity -  whose fundamentals are finally improving. For the LATAM basket, Petrobras is still the largest position in my portfolio followed by Ecopetrol and Cresy. Glencore is also still in my portfolio.

One of the companies I sold was Kaspi. While I am optimistic regarding Kazakhstan, the continued increase to the "Buy Now - Pay Later" category made me sell it. Instead I bought AMRK, a bullion dealer. I believe that gold and silver will appreciate massively and they are in a great position to profit from that trend. It also trades at around 8x EV/EBIT, cheap as the company is nicely growing. Kingdom Capital has a great write-up on Seeking Alpha. AstridWilde has a great Twitter spaces on it. I also own a small position in ASTL.

Another new entry is an oil producer from Kurdistan (more on those later) and I still hold a small position in the Sprott Physical Uranium trust. Furthermore I own several small option hedges to protect myself from sharp downturn.

Looking at some of the worst companies in the US

The Shitco Index made by SoftwareMusings, takes some of the worst companies from SPACs and the past hype cycle and puts them in an index. I like to look at companies that have severe problems, but might be exceptionally cheap -  so I will go through them. An important factor for me is scalability, as these companies have high risks of bankruptcy or heavy dilution.

Nearly all companies are a quick pass. Either they burn through cash with no path to profitability, are expensive even assuming optimistic projections, have un-viable business models or I lack knowledge in the field. Others have comparatively low growth rates, so I pass there as well.

There are three companies that I find interesting: Doma, a real estate service company. Haemorrhaged money like most on this list, but got big insider buys. Wejo because of the insane revenue growth and MariaDB, as I have worked with those databases and find it fascinating that their market cap is only 80m. I will dive into the details of these three companies next week and then publish my findings.

Oil producers in Kurdistan

When I asked for the most obscure stocks in the world, there was also the mention of an oil producer in Kurdistan. GKP.L. However since then, Turkey stopped pumping Iraqi crude after Iraq won an arbitration case where Turkey violated a joint agreement of oil exports. As a result oil companies in that region halted production. While there was an agreement to continue oil exports, pipeline operates have yet to receive instructions to restart the flows, with Iraq waiting for a Turkish response.

That made Gulf Keystone Petroleum Limited (GKP.L) and other companies in the area a bargain. I expect the problems to be resolved rather quickly. There was some recovery in the stock price, and GKP.L is up 10% since my buy point - I still think that the companies are too cheap. So far I only bought GKP.L, as it is a name I have been following for half a year, whereas the rest are new to me. I am still looking at the other companies to potentially buy. Here is a table I made to compare the different companies in the area. I am keeping a close eye on the companies.

Lion Rock Group Holdings update

Lion Rock Group recently published their annual results. I bought the company before Christmas, finding it through the Peter Cundill screen. At the time the company traded at 3.47 EV/EBIT and at 2.81 PE paying a 10.3% dividend. My thoughts were, that as long as the company has over HKD$1700m revenues and similar costs as they did then, that they can sustain the dividend.

The results are far better than I anticipated. Revenues are up 41% to HKD$2496m and earnings are up 65% to 29.77 cents per share. Given that my cost basis is 0.91 cents, that is great news. The company increased its holdings in Quarto and closed the acquisition of Griffin press in Australia. What is better though, is the dividend. The company will pay out HKD$0.07 in dividends and additional HKD$0.03 in special dividends for a total of HKD$0.1 in dividend. Given my 0.91 cost basis, that brings me to a 10.9% dividend yield. Very nice.

I don't expect 2023 to be that great for Lion Rock Group, but I still expect the dividend to be kept stable.

The market is in turmoil with the regional bank news and the UBS/Credit Suisse take-over. Today is gonna be a long one:

• Learning from Leucadia

• Learning from Victor Niederhoffer - a great failed trader

• The Shitco Index

• Future of the newsletter - why I will never go full paid.

Nvidia Update

In my last article I wrote about Nvidia being the most overvalued stock of the market. Well it got even more overvalued and instead of being 545b market cap, it is now 680b. AMD has a market cap of 155b, so the increase is close to 90% of AMD. Well it is highly irrational but it will take a while to come down due to the AI hype. What is more surprising is that the bankruptcy of Silicon Valley Bank did not spark a sell-off in tech. Just like electronic companies in the 60s or Internet companies in the 2000s -  the biggest customers of tech companies are tech companies. The loss of confidence in the VC area will lead to lower funding and less money flowing into tech stacks. Add that interest rates are now higher, and that the bank that used to lend to start-ups and unprofitable tech companies is now gone, and suddenly capex into tech is much lower. Despite the AI hype, I believe that Nvidia's Q2 will be weaker than they expect. It will take some time before my thesis plays out. Given that fund flows will now redirect from banks to the "safe" tech sector, it might take even longer.

There are also now copy cats of the ChatGPT. While these are not as sophisticated, most AI in my opinion will be specialised. For example for lawyers trying to find court cases, precedents and laws quickly and to create drafts. The big news is that it was trained on a single RTX 4090 in less than five hours. That means that you don't need as many graphics cards as the market is letting us believe to train a proper model. The RTX 4090 is a consumer card, and while expensive with around 2000$ much more affordable then something like the H1 that is around $30,000. While demand for graphics cards will obviously rise, improved efficiency usually slows the growth prospects. Since Nvidia needs 30% growth for a decade to justify their valuation, that isn't great news.

Other thoughts

I looked through the obscure stocks I wrote about, and didn't find one that was appealing to me.

What really grinds my gears is when someone says that he missed stock X as he bought it in the past and then sold - and it then went up a lot more. In my opinion there are no errors of omission. The market gives you opportunities every day.
If you sold X because it went against your investing framework (whether that is value investing or something else), it wasn't a mistake. If you sold X because you were fearful and would have held it in your framework, you probably had a long time to correct that mistake. If you still didn't correct that mistake, one needs to work on how to implement the framework better.

Learning from Leucadia

Leucadia was a great company, built on a deep value investing framework. Here are the letters from 1978-2012. From 1979-2012 they compounded with 19% CAGR. What is more remarkable is that from 1978 to 1992 they had a CAGR or 47%, which declined mainly due to the increasing size of the company.

This was their mantra:

We tend to be buyers of assets and companies that are troubled or out of favour and as a result are selling substantially below the values which we believe are there. From time to time, we sell parts of these operations when prices available in the market reach what we believe to be advantageous levels. While we are not perfect in executing this strategy, we are proud of our long-term track record. We are not income statement driven and do not run your company with an undue emphasis on either quarterly or annual earnings. We believe we are conservative in our accounting practices and policies and that our balance sheet is conservatively stated

They also repeatedly underline the importance of not overpaying for assets. Another point is that there are no value traps in excellent assets. If they are truly great they will appreciate it.

In contrast to Ben Graham, Leucadia was quite concentrated -  at least in the early days. Then it bought what was cheap, no matter the industry. From gold miners to bolivian bonds and everything in-between. For me flexibility is one of the hallmarks of a great investor and they obviously were.

Lessons from Victor Niederhoffer -  a great failed trader

Victor Niederhoffer is a fascinating character. He went from doing 30% for 20 years using futures, stocks and currencies to bankruptcy. By betting on Thai banks during the Asian Financial Crisis in 1997 and then selling put options on the NYSE, he blew up after the market declined 7% in a day. Losing over 50m of his own personal fortune he had to auction off his silver and art collection. He started anew, being again in the top performing funds from 2001 to 2006 before blowing up again in 2007 - being at the wrong end of the subprime mortgage crisis. Many would dismiss him as an investor/speculator/trader, but I think you can learn from nearly everyone. Here is a great documentary and here is a good article.

He published two books, "Education of a speculator" and "Practical Speculations" of which I will summarise interesting lessons or opinions. His investment style was trying to spot patterns and statistical anomalies in the market and then speculating on them. He usually back-tested his ideas and tried to apply the scientific method to it.

Education of a speculator is a weird book, where he relates the markets to squash, music and everything that comes to mind. There are some great pieces of wisdom in it, but it is a tough read.

Beginnings

Starting trading Victor Niederhoffer got lucky. In eighteen months he ran fifty thousand dollars up to twenty million. He thought there was going to be inflation and kept selling treasury bonds, buying gold and silver. That worked well, until one day during a game of racquetball he called to see where the market was. In an hour the gold price fell immensely, halving his net worth. As he saw a lot of gamblers die broke -  he had a system. He told his assistant and later wife "If I ever lose more than half my stake, close out all my positions". During the second game she sold everything. The brokerage account was now worth just 5 million, but at least he got out with that much.

Sadly he did not adhere to his own advice in 1997.

Avoid disaster

There are many ways to lose, but only a few ways to win. The best way to victory is to master all the rules for disaster and concentrate on avoiding them.

This is a very similar approach to Charlie Munger, who often inverts the problem to find a good solution.

Furthermore Niederhoffer says that you should not pyramid into losses and that shorting a stock is a lesson for disaster. However by selling puts, he was effectively short volatility and blew up.

You are in the greatest danger when your game appears the safest

Education of a speculator

He wrote that given the amount of trades he did, and his average profit it is 700 std. deviations from random. As a result he doesn't think it was luck. I agree. Reading through both of his books, it wasn't luck - which shows that you can still easily blow up being in the wrong positions.

Niederhoffer was always emotional about his trades. He often couldn't talk about the market declining as it was too painful. He was a partner of George Soros, who always was calm. Soros said that the market is open again the next day, and there are plenty of opportunities to make back the losses.

One thing that he says most traders do wrong is to take small gains, instead of letting them run and then closing them once they reverse course. This is then often not enough to cover the losses. I agree and have the same problem. I often close out investments way too early, and miss a large gain.

Practical Speculation

In practical speculation Victor challenges conventional thinking such as PE ratio being indicative of returns or that if the combined earnings of the market go up - that stocks should go up as well. I found those views rather refreshing. He makes the point that the market is more likely to go down the year of good earnings rather than up. The data of this book only goes to 2002, but it makes sense. The market prices in future expectations. So when the earnings go up, the market has often already priced that in. However for individual stocks the conventional wisdom of higher earnings = higher stock price still holds true.

Technical analysis and trend following doesn't work

After back-testing hundreds of indicators and patterns, not one was reliable. This is no surprise. In my opinion technical analysis can't forecast the future and should be used as additional information similar to a ratio like P/B. It is additional information about what the market has thought in the past about the stock.

Furthermore trend following was not proven to work, rather the opposite was true. It is more likely that the performance was bad in the second half of the year if it was good in the first half. The market also often rallies when gloom is the greatest. That a rally was coming is always obvious after the facts. When Vix goes over 35 the following days are usually positive - and when it is under 20, they are usually negative. When I back-tested it, it was 52% profitable with a profit factor or 1.4 for the market. With 52% I am not sure if it is a good signal or if it isn't.

Boasting and Stadium deals

In a back-test companies where the CEO boasts that they are leaders in their field under-performs. Whereas CEOs that are described as low key, down-to-earth, modest and unassuming usually outperform. Their returns were seven times that of the market in 15 years.

Companies and countries that complete tall, lavish buildings usually experience disaster shortly thereafter. That was true in Babylon, Kuala Lumpur in 1997 or the Nasdaq MarketSite Tower before a 70% decline. Enron's lavish tower was close to completion when it filed for bankruptcy.

Companies whose CEO appears on Forbes also tend to perform about 5% worse than the market in the month after making the cover. The Stadium jinx has been widely noted with Enron, TWA; CMGI, 3Com and more recently FTX. During the year of naming and the subsequent year, the companies performed significantly worse than the S&P 500. In the second and third year however the results are mixed to bullish.

Criticism of Benjamin Graham.

Niederhoffer dismisses Graham, as Geico that went against his principles was the best investment. He also concluded that many imitators and funds do poorly. He also reasons that growth stocks over-performed value stocks from 1965 to 2002. While value outperformed in the consequent decade, we have just experienced another decade of huge returns for growth.

My problem with the criticism of Graham is that : First. Nearly all funds do poorly, so it is likely for value investing funds to do so as well. Second, is that the back-test of net-nets has done spectacularly. However this strategy is not feasible for funds, as the companies are often so small you would move the market with a big fund. That is also the reason why Buffett switched from special situations and cigar butts to buying great companies at fair prices, despite him having outstanding returns.

Things to keep in mind

There are a few things that Victor keeps in mind when buying stocks.

• Stocks have a CAGR of 7-10% over the long run.

• Insider buying and selling are great at timing

• The higher a company’s expected growth rate, the higher the current price relative to current earnings.

• As much as 80 percent of the maximum risk reduction can be achieved with as few as 15 stocks.

• In most periods, small companies tend to perform better than big companies.

• Companies that made buybacks / dividends tend to outperform those that don't have these over the long run.

• A decrease in inventory and accounts receivable leads to good performance.

• If a company pays a good amount of taxes, usually their returns are higher than those who don't.

Value Line

One of the things he noted is that the Value Line Timeliness Group 1 and the Technical Analysis Group 1 outperformed the Group 5 significantly. A long-short strategy of buying Group 1 and shorting group 5 makes money in 75% of the quarters.

Luckily a friend was so nice to send me the current value line. So here are the stocks that are Ranked Group 1 in timeliness and technicals and the ones that are group 5 in both. I am not sure how valuable this strategy is, given that the book came out in 2003, but I find it interesting nonetheless.

Timeliness + Technicals in Group 1

Untimely stocks Ranked 5 in technicals and timeliness.

The Shitco Index

I found a cool article about companies. It is an index that is invested in the worst companies out there. Where most of them will go bankrupt, some of them will no doubt be winners. I will look through them next time.

Future of the Newsletter

A few people have asked me if I will put my writing behind a paywall. The answer is no. The reason is that I write mostly for myself. I would hate having to deliver a specific quota per week or month. Sometimes, I just don't find anything, or I am not interested in writing down more than a short Tweet. . What I have found tho, is that my writing productivity is proportional to the amount of Thai food I consume from my favourite restaurant, so I might add a paid tier to support my Thai consumption, but the articles will always remain free.

Nvidia reported earnings yesterday and is up nearly 10% after hours, bringing the company's market cap to 545b and the valuation to 120x P/E and 20x P/S. In my opinion, it is the most overvalued stock in the market right now. 

Earnings and the Trend

The market cheered on Nvidia using so many "AI" buzzwords in their earnings call and that they beat their extremely lowered expectations. By all accounts, these earnings would be terrible for any company, let alone one that is priced to perfection. Operating income down 58% is brutal. But if you look closer, it looks even worse. Data center chips are up 11% YoY (which is too little, as I will show), but they are down 6% QoQ - meaning they have the first deceleration in earnings here since Q1 2021. Funnily enough, the data center increase is less than the increase on cereal YoY. (thanks, @BluthCapital, for the info)

At the same time, the company has big SBC (share-based compensation) expenses. For the full year it was close to 50% of net income, in the last quarter it was 68% of operating income. Terrible for a company as mature as Nvidia.

Gaming has been down 46% a year and up and up 16% QoQ. The downfall has been caused by the decline of crypto, the switch from Ethereum to Proof-of-Stake needing less processing power and the general decline in gaming as countries have opened up after the pandemic. At first glance, a small recovery looks like good news. Well, not exactly. Inventory is up 98%, but what is worse is that they released the RTX 4000 series. Gamers have been starved for graphics cards for a long time, with the exception from 2018-2019, due to the high demand of crypto miners driving up prices. Now cards are available, yet it seems demand is not really recovering. As a comparison for the RTX 2000 series release, the companies recorded over 67 and 106% YoY growth and 10% and 11% QoQ respectively. 

Forward guidance

But forward guidance cry the bulls!

 The CFO guided towards 6.5b in revenues with 64.1% gross margins and 2.53b in operating expenses, bringing us to 1.63b in operating income. That certainly looks better than the current quarter, the problem is that it is still a decline compared to last year.

In Q1 2022 (which is Q1 2023 for Nvidia's fiscal year), the company had revenues of 8.2b and operating income of 1.8b. The guidance is 21% lower in revenues and 13% lower in operating income than in the last year. So much for a "growth stock". Btw, YoY the stock is down less than 5% despite earnings eroding 50%+.

But AI

Well, the AI hype is certainly there. The thing is: it won't accelerate the growth by a lot. Their data center offerings have been used for years now to train Neural Networks and AI. Their cloud computing (now AI Cloud Computing instead of GPU cloud computing because that is better), will grow - but not significantly more than it already did. Furthermore, the companies that try to hype up their stock on AI, did the same with the metaverse and bought GPUs for that. These can be used for more than to render graphics.

Demand will certainly grow as the processing power demands continue to rise, but not in an explosion like the market currently expects. Nvidia is also the biggest player in the space. 

Insiders have also been selling like madmen at prices much lower than today. 

Cisco 

The current valuation leaves Nvidia more expensive than it was at its peak in 2021 when the company was growing 50%. The company reminds me now of Cisco during the dotcom bubble. Great companies, just insanely overvalued. Cisco declined 38% before rallying back to 38% and subsequently dropping 80%. Nvidia dropped 68% and is now up 115% since the lows. History doesn't repeat, but it does rhyme. For Cisco, it was also said that the company would grow based on the Internet hype, but once demand was met, their earnings plummeted - just like we are seeing now with Nvidia. The market doesn't accept that yet, but being patient is required.
I would say that Google's business model is much better than Nvidia's. If Nvidia had the same multiple as Google, it would trade at around $50 per share, not $222. 

There are also only two companies since 1999 who had a positive return, with a P/S ratio of over 15 and being in the top 10 worldwide market caps. Alibaba and Facebook. Both during a 0% interest environment and the full force of internet adoption behind them. 

What is baked into that valuation

At 120x P/E the market certainly expects growth in the next 10 years. Now, valuations should already compress due to interest rates rising, but I will compare it to the market. Let's assume that both the market and Nvidia trade at 20x P/E after 10 years. Mature chip companies usually are around 10x earnings, but we put a premium on Nvidia. 

Historically, the market has returned 10% a year, that will be our baseline. Now the CFO guided towards lower earnings in Q1, but let's assume that in 2023 the company will grow 10%. That means that the company needs to grow around 30% for nearly a decade to get the same return as the market. Nvidia, in contrast to AMD, also has the problem, that they are already the biggest player in that space.  In Q3 2022, Nvidia had an 86% market share for GPUs in desktop computers. 

The company is also completely dominant in enterprise GPUs. According to IDC, Nvidia held 91.4% of the enterprise GPU market.

The bet is not only that they will keep their huge market share -  despite big companies like Google, Microsoft and Amazon being in the process or already releasing data-center chips -  and that the market will expand by a huge amount each year.  

Technicals

On a technical standpoint, the company is moving against huge resistance at the 229 level. Since the end of January, the company trades in the range of 209-230, which it did previously before the big run up in October 2022, in March 2022 before the bear market rally and in April before a nearly 50% decline. If the stock doesn't manage to stay above the 209 in the next following days, it is very likely to drop by a lot. The next big support line is around 140. In terms of oscillators those show to a sell, while the moving averages show a slight buy. So other than the resistance levels, the technicals are not giving us a strong signal in any direction. 

I think that similar to the earnings reactions of Coinbase and Doordash, it goes up 10% and then drops and closes red at the end of the day. If it does close significantly under 209, it could mean that the rally of the last 6 months is over. The market is irrational tho, so who knows what will happen in the short term. 

Abonnieren jetzt

Today is just a small update. Seems that I now have a tradition of a yearly bubble market post after a big rally.

In 2021, when I made the post at the end of July, it took the market another 12% rally and six months to go down. For most of the bubble stocks, it was a local top, with ARK declining more than 30% after my post.

In 2022, I published the second post one year and one month after the first one. ARK climbed another 23% and ultimately went down 30% from the publishing date in the following months. Nasdaq went up 10% before declining 14%.

So, I am not great at timing that. Today we have another bubble market in my opinion. After a great last year, my portfolio is now getting killed, giving up a lot of the gains I made. I was short a lot, and didn't anticipate the violent moves. And violent moves they were.

For example, Tesla posted a gain of 98% YTD, despite earnings confirming that the growth story of 50% can't be realized - and then introducing price cuts, that would decrease their earnings by at least 40%. Now the move itself is irrational, but the size of it is astonishing. That gain means that Tesla's market cap increased by $323b in 1 1/2 months. That is the equivalent of a whole Toyota + one of the biggest battery producers, CATL.

Nvidia is even more baffling. The company is now trading way above their profit warning in July 2022, yet operating earnings were down 66% - with earnings coming up next week. All their competitors in the gaming space guided lower, and those in the datacenter and semi space like TSM, MSFT and AMD all guided towards lower growth. The company now trades at 19x P/S and more than 76x EV/EBITDA - which is very close to their October 2020 valuation of 89x EV/EBITDA when interest rates were basically 0, and growth was over 50%.

Then we have numerous companies that just lose money like Rivian and Plug Power. Companies like Upstart that lose money head over heels, revenues declining by 50% and still trading at baffling valuations. Other darlings like The Trading Desk, Shopify, Palantir all had big up moves as trading well above 10x P/S with growth starting to stall.

Today’s DoorDash earnings were shocking. Revenues up 35% but loses doubled to -370m in operating income and -640m net income. The more they sell, the more they lose - a broken business model. SBC (Share-based compensation) is 268m or 14% of revenues. They have announced a 750m share buy-back, though. The thing is, they already did that in May 2022 (and I even wrote about it then):

Doordash investment thesis is strong strong growth. The company has a $3.6b cash/short term investment cushion to strive towards that goal. Since they are not profitable, they deplete their cushion by buying back shares and admitting that their growth story is no more.

Since then, the outstanding shares have increased 10% with loses mounting and cash declining.

What is so baffling is that everything seems to be good news. Declining inflation is good news, when inflation came in hotter than expected for January that is good news as well. Declining earnings - good news. Rising interest rates, good news. Dollar falling, good news -  dollar rising, good news.

Now I think that the economy is much healthier than many bears do, however I think that the stock market isn't.

Given that earnings ex-energy have declined since the top in December 2021, the market now trades above that, all the while the fed fund rates have gone from 0.08% to 4.3%.

Good Monday everyone!

I have switched my opinion from anti-nuclear to pro-nuclear a few years ago. However, the stocks were only a quick trade, as I thought it could take decades for the bull thesis to play out. That changed last week.

As many mines have shut down after the Fukushima incident, the sector went into a bear market. As a result, the supply side is now in a structural deficit. The world's power reactors require around 67500t of uranium each year, while the world produced just 48332t in 2021. A deficit of 19168t yearly.  However, the high inventory levels hindered the price appreciation of Uranium. The exact inventory levels are impossible to predict due to confidentiality, but the World Nuclear Association estimated 282 000 tU at the end of 2020. Inventory levels thus would be sufficient for close to 15 years, despite the inherent supply deficit.

Despite Japan restarting some of its reactors and China vowing to expand their nuclear reactors, it wouldn't be enough to warrant an investment. However, there is another critical part: the Sprott Physical Uranium Trust. In 2021 Sprott took over what used to be called the Uranium Participation Corp and created the Physical Uranium Trust. The trust issues shares if it trades above the NAV (Net Asset Value) and then buys more physical Uranium. It now holds trust now holds 59.7 million pounds or about 45% of annual production. In 2022, the trust acquired 18 million pounds U3O8. 1t of Uranium is the equivalent of 1.17924t of U308. That means that the world inventories are the equivalent of 332545.68 tU308 and the yearly deficit 22603.672t. If we assume the trust acquires another 18 million pounds U308 (6925.7t) in 2023, that yearly deficit increases to 29529.37 and the remaining inventory to 11 years. Furthermore, Yellow Cake (another trust listed in London) and a new entity backed by Kazatomprom will also acquire physical Uranium -  increasing the deficit even more. Thanks, @quakes99 for so much infos on the topic. 

The problem was that the Sprott Physical Uranium Trust often doesn't trade at a premium to NAV. It could take years until they acquire enough Uranium for the market to care. It needs a catalyst.

Theory of reflexivity

The theory of reflexivity created by George Soros is relatively simple. It says that market prices distort the underlying fundamentals and changes them. Furthermore, he believes in positive reinforcements. Forces that accelerate a trend both to up - and the downside, explaining the boom/bust cycle in sectors and the economy.

One example that he gives was the conglomerate boom of the 1960s. Big companies started to acquire undervalued companies with bonds, debentures or convertibles (often diluting shareholders in the process). That meant that the earnings per share of the companies increased and the price of the conglomerate's stock would go up - making it easier for them to acquire other companies. The market thus reinforced the trend. Acquisitions thus become more and more reckless. As interest rates rose to offset the rising inflation, profits began to decline. The market then realized that the acquisitions were often value destructive in industries that required huge reinvestment. Just as the trend accelerated to the upside, it accelerated to the downside - as now corporations were more bloated and inefficient. Bankruptcies and spin-offs followed.

The same patterns could be observed during the first REIT (Real Estate Investment Trust) boom. Introduced in the 1960s, it took them until 1969 to really took off. Soros published a research report in 1970 saying that because REITs can sell shares at a premium over book value, they would create higher per share earnings for their shareholders. Due to the high yield and the anticipation of per-share earnings growth, investors would bay above book value. The more the premium goes up, the more value the REIT can create. That process would reinforce until the amount of REITs and projects became too much, making everyone to scramble for the exists. REITs would then trade discounted to NAV reversing the value accretion as interest rates increased.

A more recent example is the Grayscale Bitcoin Trust. As the trust was an easy way to get access to Bitcoin, it traded at a premium. This allowed the trust to issue shares and buy more and more of Bitcoin. The price of Bitcoin appreciated, leading to a higher premium for the GBTC and reinforcing that trend. Kuppy made the point that the Sprott Physical Uranium Trust has similar properties and that the switch from Underfeeding to Overfeeding (here is a great explanation of what that is) and hedge funds embracing Uranium after the WEF summit is enough to get the ball rolling. I disagree. These forces are helping the ball accelerate, but the ball was stopped until last week. 

Kazatomprom missing production goals

After Sprott spent some time trading discounted to NAV, it is now back at a premium (although only 2% as of 30.01.23). It is great that they can start to buy more Uranium again, but the big news is that Kazatomprom missed its own production goals.

Not only did they miss big on their production goals, they also guided towards lower production in 2023 due to delays and supply chain issues. Kazatomprom now expect around 21000t U compared to the previous guidance of around 23000tU. At first glance, that doesn't look massive, but it would mean that 3% of the global production is missing. This decreases the supply deficit even more, drawing the remaining inventory to 8.5 years until depletion, and that isn't factoring in the Japanese reactors that are getting turned on again. Sprott also now has the money to acquire 440t Uranium. Whereas the ball was standing still, despite supply deficit, a switch from underfeeding to overfeeding and a mindset change - in my opinion the ball got rolling and is accelerating now. (Be sure to read Kuppy's post as well).

As a result, I recently bought some Sprott Physical Uranium Trust (U.U), Cameco (CCJ) and Kazatomprom (which trades in London). The reason for my investments in only those two Uranium Miners is basic: They are the only profitable ones. Kazatomprom just missed their own production, but if the price of Uranium increases, so will their earnings. There are many miners that have great assets, but starting a mine can be difficult - especially in a field that was neglected for over a decade. There is a time and place for more risky juniors - but I rather stay on the safer side. All in all, I think that Uranium offers an enticing risk/reward at the moment.