A letter to my local State member

Consider this a diversion from the usual finance posts on this blog.

Today my concern is State politics in New South Wales, Australia.

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In New South Wales we have just had a moral-conservative Premier who enacted late-night alcohol bans in large parts of Sydney justified from a moral panic about alcohol fuelled violence. This has destroyed much of Sydney's nightlife.

I can imagine Anthony Bourdain doing a show on Sydney. It would be embarrassing. This city has become dull.

The departed Premier also banned greyhound racing - which in Australia is a sort-of-poor-man's-horse racing. The dogs are a working class pursuit - sometimes involving cruelty to our canine friends (but probably not much worse than the cruelty to horses racing them). Electoral politics forced the Premier to reverse that ban.

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Since then the New South Wales Premier has changed - and so I saw my chance to write
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Syntel – a plea for help

I don't often use the blog to find people who can just "tell me the story" but I am becoming increasingly puzzled by Syntel (SYNT:NASDAQ), an Indian outsourcing company and a competitor of Infosys and similar companies.

This is a company I have had continuously analytically wrong - but made (very small) profits. I would rather be lucky than smart (and in this case I have been lucky) but with you dear readers I hope to be lucky and smart.

I found Syntel on a systematic search for companies that were so incomprehensibly profitable that fraud was a reasonable suspicion.

Syntel was one of about thirty that came up. (Incidentally that same search generated some longs when we worked out why the businesses were so profitable...)

Anyway Syntel was full of red flags which made us investigate further for fraud. (We found no evidence of fraud in the
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A puzzle for the risk manager

The last two posts were essentially about picking a value-stock portfolio and managing the risk. And they were lessons that I thought I could implement.

This is stuff I find harder. So I am looking for your input.

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This is the portfolio of a fairly well known value investor in March 2008. I have taken the name off simply because it doesn't help but there was roughly $4 billion invested this way.

To put it mildly this portfolio was very difficult over the next twelve months.


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Sector allocation Positions
Banks - Europe 24% Fortis, ING, Lloyds, RBS
Banks - Japan 14% Millea, MUFJ, Mizuho, Nomura
Banks - USA 8% Bank of America, JP Morgan
Technology - PC & Software 18% Linear Technology, Maxim Integrated products, Oracle
Semiconductor equipment 14% Applied Materials, KLA Tenecor, Novellus Systems
Beer 20% Asahi, Budweiser, Group Mondelo, Heinekin, InBev
Media 15% Comcast, News Corp,
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When do you average down?

The last post explained why I think a full valuation is not a necessary part of the investment process. A decent stock note is 15 pages on the business, one page on the management, one paragraph or even one sentence on valuation.

Valuation might normally be a set of questions along the lines of "what do I need to believe" to get/not get my money back.

But I would prefer a simple modification to this process. This is a modification we have not done well at Bronte (at least formally) and we should do better. And that is the question of averaging down.

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Warren Buffett is famously fond of "averaging down". If you liked it at $10 you should love it at $6. If it goes down "just buy more". And in the value investing canon you will not find that much objection to that view.

But averaging down
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Valuation and investment analysis

I just had a chat with someone who wondered why I did not have a valuation for everything in my portfolio - a buy and a sell price.

My reaction: such (false) precision was silly and ultimately counter-productive.

To demonstrate I will give you a set of accounts for a consumer staples company.


Annual Standardised in Millions of U.S. Dollars
201520142013
Revenue7,6586,9777,212
Net Sales7,6586,9777,212
Total Revenue7,6586,9777,212
Cost of Revenue, Total3,6333,4543,860
Cost of Revenue3,6333,4543,860
Gross Profit4,0253,5233,352
Selling/General/Admin. Expenses, Total2,6652,4462,368
Selling/General/Administrative Expense2,6652,4462,368
Labor & Related Expense------
Advertising Expense------
Interest/Investment Income - Operating------
Investment Income - Operating------
Interest Exp.(Inc.),Net-Operating, Total------
Unusual Expense (Income)36(195)0
Restructuring Charge36
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Did Mike Tyson ring a bell?

They say nobody rings a bell at the top. But this is pretty good...


It's Mike Tyson promoting online trading platform Trade12.

What can you say? I wouldn't like to step anywhere near a ring with Iron Mike - but I would love him as a counter-party.

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Trade12 is a bit of a black box. It is - and I am not exaggerating, owned and operated by an Estonian subsidiary of a Marshall Island company and regulated by a private company in Vanuatu.

And according to its literature it does not solicit and accept clients from USA and France.

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Which brings me back to Iron Mike Tyson.

He is - I gather - a US citizen.

Either he trades with Trade12 (which would be illegal) or Trade12 is not "the strong choice of a champion".

I suspect the latter - in which case my fantasy of trading against
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UCB: Lower standards in Belgium

The last two posts on this blog detail how - for all practical purposes - UCB (the large Belgian pharmaceutical company) has lost the patent to one of its main drugs (Vimpat) and not told the market. See here and here

EBIT is likely to fall 30-40 percent eventually. The company might dain one day to fill shareholders in on the details. The numbers are really not pretty but without proper company disclosure it is impossible to make an accurate estimate. 

For almost two weeks I have expected the UCB to make a statement. But they have kept silent failing to disclose key information to the market.

The patent's death certificate was only sent by the United States Patent and Trademark office last Monday and there are different time-zones and languages to deal with. So I drafted the blog-posts gently, expecting a confirming press release along with accurate
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