The above quote is from quirky fund manager Dr Michael Burry MD towards the end of the movie, The Big Short. It says so much of today. One mate who is a very decent asset manager in Australia wrote to his clients, “I realise such may fly in the face of typical adviser recommendations (show me how someone is paid and I’ll show you how they will behave) however, I would rather lose a client than lose a client’s capital.”
We share similar views on the state of the global capital markets. We joked about his long message to his investors sounding like Jerry Maguire burning the midnight oil writing the “fewer clients, less money” manifesto which got him sacked.
Now that our world is moving further and further toward automated everything including pre-emptive responses (which I scoffed out the other day about LinkedIn) it is truly refreshing to see this authentic honesty. The irony is that as much as machines are pushing us into ever tighter time windows, humans instinctively carry long term memory whether trauma or positive life events.
May your honesty be paid back in spades when those you saved a bundle recall your genuine gesture.
Fund managers will find it tougher in the new post MiFID2 world to discover new companies in Japan. The sell-side research houses are likely to focus less and less on the one part of the market that clients are likely to be interested in – smaller medium sized enterprises which have unique business models exploiting the slow to change direction super tanker large caps. As a result many corporations will stick to traditional investor relations (IR) behaviour. Producing quarterly results and annual reports will not be enough. As stockbrokers become disincentivized to promote the same corporations they used to go out of their way to support by hosting IR roadshows, the companies will have to take it upon themselves to fill the gap. To that end IR will become PR.
Instead of buy-side analysts running complex forecasting tools, perhaps they would be better off covering off which corporations are actively promoting themselves relative to others. Surely those companies proactively contacting investors and providing them with up to date and relative updates will gain much more mind-share than those that don’t. Do not think for one second that time poor investors and fund managers won’t make time for those companies that make time for them. It is tough enough trying to fight off the onslaught of ETFs internally so wherever a corporate makes decision making simpler and time efficient it is not unbelievable to think that those stocks (provided they follow through with the earnings) won’t trade at a relative premium to those that stay behind the comfort of their own desks, despite in their eyes providing the minimum requirement of information.
Meeting one successful internet database company in Japan recently, I questioned why a company that had seen its revenues grow 70% in 3 years had seen a share price drift 40% lower. The IR team were worried why they had seen such a drop off in client contact. It wasn’t that it had poor results. It was that it was sticking to a stale script and a liquidity drifted below crucial levels, the stock was being dumped on that alone. The irony was that the smallest division that was growing the fastest was on the back page even though it was growing 5x faster than any other division and at twice group margins. For a simple tweak in its PR material, the stock would light up. Still the company intends to stick to convention (for now).
How do you value an auto company that has no earnings? Tesla still bleeds chips badly. Of course the $54bn market cap share price ($320/share) is forecasting a very bright future. High hopes for the Tesla Model 3 (despite the production disaster) remain. In the endeavour to find another way to cut the data, when one divides market capitalization by production rates some glaringly BIG differences emerge. So for each unit of production the weighted average of Mercedes & BMW Group would get an investor $31,000 worth of market cap. Tesla on the same measure is $637,500. If Tesla hits its 2020 target of 1,000,000 units production, even if we generously gave it the same margins as the German luxury makers, the shares would have a fair value of around $185 (or 42% lower than today). If put against the volume makers (Toyota, Honda, Nissan, GM, FCA etc) the fair value at 1,000,000 units ceteris paribus is (you’ll need to wait for that!)
CMR is mid way through a 30 point reason why Tesla is massively overrated after spending a full day yesterday with engineers (a very honest bunch) of the parts suppliers at the Tokyo Motor Show. Like I always thought – all the auto makers are pulling out all the stops with their PR departments to virtue signal. The parts suppliers do not have anywhere near the expectations of the OEMs which tells us all we need to know. How I see all the de ja vu of the time that governments were chucking cash on renewables and created such a disaster of misallocated capital that sent many to the wall.
It didn’t take long for the Tony Abbott haters to spring into action. The media naturally is panicked that this Labor-esque budget will kill off Turnbull if the polls don’t reverse and give rise to an Abbott return which they know would win back swathes of disaffected Lib voters who have abandoned the party since the betrayal. Abbott’s crime? Not applauding the Treasurer for the shameful budget presented last night. Spoilt brat, sore loser and against his own party are the accusations. One can only imagine had he clapped the headlines would have read ‘Sell out!’ or ‘Applauds the opposite of what he proposed!‘
Let’s think about what his actions truly showed in the context of ourselves. If you worked tirelessly and loyally for a company/party and dedicated almost three decades of blood, sweat and tears to an organization’s success let us just say that you have ‘invested’. Even if you haven’t you may know someone in your firm who has but let’s assume its you. You are unfairly shafted from your leadership role and your conniving successor seeks to undermine you at every opportunity. You are not only demoted but stripped of dignity. Despite clear evidence you still wish to work for the betterment of all because of those years of investment, you are sidelined and black-balled. Any sensible contribution is ignored and those who once supported you start to realize that doing so risks them being tarred with the same brush in front of the new management. You see the fruits of your hard work get eroded even to the point where the damage impacts the core values of your customers. Even though you have sleepless trying to stop the boat you painstakingly and lovingly tried to build and maintain from sinking, management continues to play music on the deck of the Titanic. Some may call your cause futile but they can never deny it is built on trying to be true to the people you serve internally and externally. Then one day you realize that the damage is irreparable and you won’t appease your new boss on the basis of what you know to be the complete antithesis of your soul. People still respect you inside for not selling out. You’re the real deal and secretly people respect you way more than they let on. Secretly they know they are ashamed of their insecurity.
So while I read many social media posts telling Abbott to ‘go away’, ‘quit’, ‘do us all a favour and go‘ I would argue that many of you are playing the man not the ball. Was he flawless? No. Was he well intentioned? Yes. He is the man that volunteers for the rural fire fighting service. He didn’t do it for point scoring, It was dedication to the cause. If indeed it was for point scoring then why would he bother to do it now he is on the backbench? Perhaps ask yourself one question – would you prefer a person of principle to be your boss or someone that would sell you down the river if you ever got in the way of their ambition? If you choose the latter it says a lot more about you than Tony Abbott. As Churchill remarked, “You have enemies? Good. That means you’ve stood up for something, sometime in your life”
The media is petrified. If they weren’t they’d see no reason to give him any airtime.