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Greetings from St. Moritz



Greetings from St. Moritz Switzerland… I went for a walk this morning and took the above picture. I’m here for MOI Global’s Ideaweek.


This conference is more than just stock ideas. There were many thoughtful presentations and discussions on all kinds of things such as… position sizing... how to assess political risks… a breakdown of Greenlight’s track record and how it went south… and even a talk about parenting.


Further down below, I have an edited version of a talk I plan to give tonight, inspired by reading a handful of Neil Postman's books. Don't know who he is? Read on...


Also, I've enjoyed the many conversations I've had with fellow investors about investing ideas. I include below some notes on two ways to invest in India.


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Last night, we were talking about ways to invest in India.


I like Fairfax India Holdings (FIH-U), which we own in the fund (a 3-4% position). FIH invests in private and public companies in India. Fairfax Financial manages it and owns about a third of it.


FIH’s largest investment makes up about 30% of NAV and is the one I’m most excited about. This is its stake in the Bangalore airport, the 3rd largest in the country and one of the fastest growing in the world. Through the first 9 months of 2018, overall traffic increased 31.2% over the year prior, to 23.7 million passengers. Expansion plans are underway to take up capacity another 20 million by 2021. And then another expansion will take it to 65 million passengers. There is also 460 acres of land that could be developed. Some day, this investment alone could be worth more than all of Fairfax India today.


FIH acquired this investment in two purchases for an average price of ~11x free cash flow. Seems a good deal to me. This is why you own FIH. You count on Fairfax’s team to find good things to buy and not over-pay.


In addition, Fairfax owns several other interesting investments. The next biggest, at about 25% of NAV, is IIFL Holdings, a publicly traded financial services firm. It’s been a 5-bagger over the last 5 years and seems to have a long runway. It trades for about 11x estimated 2019 earnings (fiscal year ending March). But it has struggled of late; the stock is almost 50% off its August high.


As a result, FIH’s stock got hit, too. FIH trades close to book value. Note: book value is Q3 book value and I suspect it will fall in Q4 as a result of IIFL’s decline. But it should be a temporary ding. The long-term story is compelling. FIH is an easy way to invest in the growth of India.


Some people are annoyed that FIU pays hedge fund like performance fees Fairfax to Fairfax Financial (paid in shares, which means Fairfax Financial’s stake in FIU slowly grows over time). But if FIH compounds at 15%+ net, I don’t think we’ll care about the fee. Besides, we own a much larger position in Fairfax Financial (our average price is below C$600). So, we own the left pocket and the right pocket.


There’s a lot more to say about it, but that’s the story in a nutshell. I plan to be at the annual meeting again this year in Toronto. (I’ve gone the past two years). You can find the presentation given at last year’s annual meeting here.


Perhaps I’ll review it here on the blog after we get Q4 results. (Hopefully it will go down and I can buy more).


Another interesting way to invest in India — which we don’t own — is Suzuki Motor, which owns a 56% stake in Maruti, an Indian auto manufacturer. Maruti dominates India. It makes nearly one out of every two cars sold in India.


Relative to other countries, there aren’t that many cars in India. That number could go up 5x and it still would be below China — never mind the US and Europe. So, as you can guess, lots of room for growth yet.


Maruti turned in a weak Q3 but the stock still seems pricey at ~ 27x earnings. However, Suzuki only trades for 11x earnings. In addition to the benefits of its stake in Maruti, Suzuki gets a royalty, for sharing technical know-how. So Suzuki’s stake is economically superior to just owning Maruti outright. And you get Maruti much cheaper through Suzuki. Of course, there are non-Maruti assets in Suzuki, too, which I haven’t figured out yet (and which explains maybe why I don’t own it yet).


But those assets may not matter in the long run. Just plot Suzuki’s stock price and overlay Maruti over the last 2 years. You’ll see Suzuki has basically traded with Maruti as the latter’s value has swamped Suzuki ex-Maruti. So, Suzuki probably will continue to be a proxy for Maruti. That makes it another easy way to get exposure to India’s growth story.


This is partly why investing is so much fun. I love learning about quirky ideas like these.


*** "How Media Influences Our Thinking -- Misuses of Surveys and Six Ways to Immunize Your Thinking"


Note: I’m in Switzerland as I write this and I don’t have my library with me. So, I couldn’t re-check some of these quotes I use in my talk. (I suppose I could use Google books... Eh, too lazy). Just a heads-up; don’t use this for a research paper.


Let’s start with surveys…


I’m reminded of a Seinfeld joke where he refers to a survey that says the number one fear of people is public speaking. Not death, that’s number 2. Public speaking is number 1. Which means, to the average person, if you go to a funeral, you're better off in the casket than doing the eulogy.


Neil Postman — more about him in a minute — made a great point about surveys. He says we never consider the knowledge of the people surveyed.

I tried to find some interesting financial polls to illustrate his point. Instead, I’ll just use Postman’s example. It’s a bit dated (from the 1980s), but it’s funnier than anything I came up with.


Postman says, “the latest poll indicates that 72% of the American public believes we should withdraw economic aid from Nicaragua.”


Is that meaningful at all?


Here’s Postman:


“What if I also told you the following: Of those who expressed this opinion, 28% thought Nicaragua was in central Asia… 18% thought it was an island near New Zealand… and 27% believe that 'Africans should help themselves' -- obviously confusing Nicaragua with Nigeria.


Moreover, 61% did not know that we give economic aid to Nicaragua and 23% did not know what economic aid means.


If our pollsters were inclined to provide such information alongside their polls, perhaps the prestige and power of polling would be considerably reduced.”


Lesson here is: any time you see a survey, you may want to ask yourself questions about the knowledge of those surveyed


That’s all I want to say about surveys, but there is more in Postman's books...


Neil Postman wrote a lot of what you might cultural criticism. He was popular in the 1980s and 1990s. In particular, he focused on the study of media and its effects on how we perceive the world. In his view, the effects were mostly negative.


In particular there are two books I’d recommend: Amusing Ourselves to Death and Technopoly. I also read How to Watch TV News and Conscientious Objections, which is a collection of essays.


In these books there is one big and profound thought that ties them all together: the medium regulates, and even dictates, the content it carries. Or, as Marshall McLuhan put it, “the medium is the message.”


So what does this mean? Postman says think about smoke signals. You can convey a variety of messages using smoke signals, but you can’t express ideas about the nature of existence, right? You cannot use smoke signals to do philosophy, as Postman says. Its form excludes such content.


Likewise, TV, twitter, email, etc., all make certain demands on what you can talk about and how.


That’s the meat of idea.


In Amusing Ourselves to Death – published in 1985 – he spends a lot of time talking about television’s impact, and how it demands certain content… but you can readily apply his insights to the internet and social media. The line between what is show business and what is not is hard to see.


Look at the impact of media on the presidential election in the US. The landscape today demands a personality that has good command of TV and other media outlets... To get elected today requires a different set of skills than years ago. In fact, it is hard to imagine some past presidents getting elected today. Lincoln? Most people never saw him, not even his picture, and never heard his voice… think about how different that it is than now.


And think about what media saturation does to our world of investing… How does a 24/7 news culture and social media impact the role of a CEO and the skill-set required? What is rewarded and what is punished? Might it be, as Postman says, that we give undeserved authority and prestige to those who have “media” skills over those who do not?


What about the nature of being an investor? What does media demand now of a “good” investor? What does media push us to do? Not do?


I don’t have fully formed answers… But as Postman says, to ask the question is to break the spell media can have over our thinking.


There’s another book Postman wrote with Steve Powers, who was a TV anchor, called “How to Watch TV News.” In that book, he has suggestions about “what can you do.”


I’ve taken his suggestions, which apply to TV, and broadened them to include media generally. So here are six suggestions.


1. When you encounter any media, you must start with a firm idea of what is important.


You will be endlessly manipulated if you have no clear sense of how to evaluate news or understand what is important. Other people will dictate to you what they think is important – and really, it’s not what they think is important, it’s what they think is most interesting, controversial, etc. The goal of a journalist, say, is not to tell you what’s important… but to tell you a story they think you will want to read.


2. Keep in mind, it is a show


Media outlets of all kinds want eyeballs and want to sell advertising or get subscribers. That’s their goal. And to do this, they use all the elements of putting on a show to try to make it compelling.


This may seem simple, but it’s worth keeping in mind, that this applies to the internet as well…


3. Never underestimate the power of commercials.


Postman: “Commercials are not fluff. Commercials tell us a lot about our culture. It can be a rich source of information about fears and motivations.”

I differ a bit here. I look at commercials almost like magical spells that try to get you to do things. Advertising has become very sophisticated. Advertisers know how to push your buttons. (The comedian Bill Hicks used to refer to people in advertising as "satan's little helpers.")


4. Pay attention to language.

Language is never neutral and no one can be impartial.


For example, how you phrase questions or how you structure questions greatly influence what kind of answer you get. Questions can never be unbiased. Never. There is always a person asking the question. And there are always ways to ask the same question in a different way, thereby vastly changing the odds of getting a certain answer.


Here’s a joke, Postman tells that makes this point: There are two priests who, being unsure if it was permissible to smoke and to pray at the same time, wrote to the Pope for a definitive answer.


One priest phrased the question “is it permissible to smoke while praying?” He was told it was not, since prayer should be the focus of one’s whole attention.


The other priest asked “is it permissible to pray while smoking?” He was told that it is, since it is always appropriate to pray.


(Another joke I’m reminded of here: Frank Lloyd Wright was a witness in a court trial once. He was asked, "What is your profession?" He said, "Architect." The next question was, "What is your standing in your field?" He said, "I am the world's greatest architect." His friends told him later, "Frank, you carry this arrogance too far sometimes." He said, "What could I do? I was under oath.”)


5. Reduce your intake of media by at least a third…


If you consume less media then you’ll be less prone to its effects. Really nothing much more to it than that… But he does make the point that if you think you might miss something important you won’t.


Years ago, I did cut back on my media consumption. I used to read three newspapers a day, and I cut that back to just one. I also cancelled a bunch of financial magazines. I don’t feel like I’ve missed a thing. If something is really good, I tend to hear about it anyway through friends.


6. Reduce by a one-third, the number of opinions you feel obligated to have…


This is my favorite.


Postman writes: One of the reasons many people are addicted to watching TV news is that they feel under pressure to have an opinion about almost everything. College-educated, middle class people seem especially burdened by an unrealistic and slightly ridiculous obligation to have a ready-made opinion on any matter.


Think about the questions that get passed around: What do you think about immigration policy? Or foreign policy? Or oil prices? Or the next election? It is absurd.


Discover the liberating feeling of saying “I have no opinion on this since I know practically nothing about it.”


So, that’s that… I’d be interested in hearing about how you balance media with the real work of investing. While my talk may sound very negative about media, I do realize there are benefits as well.


For example, I have a love-hate with twitter.


On the one hand, it’s a great marketing tool and I do get interesting stuff from certain people on Twitter.


On the other hand it can be a real time sink. I'll go through my feed… and then you realize an hour has gone by and you’ve really accomplished nothing. It’s like junk food for the brain.


I like to say: you are what you pay attention to… it’s kind of like you are what you eat… If you spend hours on Facebook or Twitter or cruising the internet or watching videos, then all those things become a part of you… So, give a great deal of thought to what you choose to give your attention to. Your mind is a like a garden. Put good things in it and take care of it and you’ll get better results…


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Published: February 7, 2019

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