Notes from Anthony Deden interview by Grant Williams

To be honest, I did not know Anthony Deden, he is the founder of Edelweiss Holdings, a private investment holding company with long-term participation in the production, chemistry and technology of food, aquaculture, materials, forestry, resources and various industrial and engineering endeavours.

Recently I watched an amazing interview with Grant Williams (Real Vision) and I was fascinated by all the wisdom Anthony shared.

I started to try to find more information about him and his holding but he only has a corporate presentation on his website. His portfolio (as at 31 Dec 2017) it was formed by:

  • Listed equity participation (28)—58.4%
  • Unlisted investments (1)—0.8%
  • Gold reserves—35%
  • Cash—5.8%

The return record is quite spectacular, Edelweiss holding vs MSCI World Index.

edelweissHoldings_returns.PNG

 

Also, I could find some equities he owned, such as Emmi (Magallanes Value is a huge fan of this company also), Bic and TFF Group.

equities.PNG

Some notes about the interview:

  • In his 30s he started to help his mentor to manage a family wealth.
  • He discovered Graham and Dobb books because of some Swiss friends in NY banks.
  • He was also interested in understanding what is interest rate and money so he started to read Austrians and classical liberals.
  • Quantification is not as necessary as people believed. His ideas are to focus on understanding the whole business (suppliers, products, management) that to follow the daily price of the equity.
  • He changed his view about investment management (one policy for the 10/12 families he had). Investment is protecting, enhancing and deploying the capital permanently in a time horizon.
  • He talked with the families he managed and ask for a time horizon and one investment policy for everyone. They finished the old investment management agreement and set up a new one.
  • In 1995, 1996 and 1997 monetary policy became the driver of investing. In that period, prices of securities were going up, independently of economic
    results or economic activity. In 1998 he thought it was an error in the way he knows the reality, it was wrong him or others. He started a period of soul-searching because he thought he was too old-fashioned and the world changed. So, you need to rethink the basic assumptions of what is real and what is not.
  • He invests in companies that were there and will be there in the future. In the first QE he though the rules changed.
  • Owners vs investors. Owner businesses are far more interested in this survival of the company,
    also interesting in suppliers, employees, products, etc. An investor is someone that wants to sell higher that he bought. The wealth creation is different from both of them.
  • The book Antifragile, in his opinion, is one of the most extraordinary books he’s read.
  • “Wealth is the compounding of earnings”.
  • “What can go wrong is more important than what can go right because over time you are in a marginally good business will profit, will do well.”
  • My favourite part of the interview is around time 1:01:41, scarcity is the most important law in economics in that no one can have all of they want. Scarcity is a natural law, it’s just part of life there is scarcity in material goods in resources in everywhere you look at the scarcity in real savings in terms of money other than perhaps credits is being created. Scarcity is also found in skill sets, there is also scarcity among the kind of characteristics in character in men that you and I would consider to be attractive.
  • The second word in his principles: permanent, he sometimes thinks to call it endurance, it’s the idea of creating a framework not only within your collection of investments but by extension within each investment nature, an investment that is designed to endure rather than merely grow.
  • The third component is the idea of independence, we are quite dependent (key suppliers for example) dependence makes a system more fragile, so the more independent an organism is from external weaknesses the more likely is to set out its endurance or this strength. Bear in mind that independence is costly.
  • Freedom doesn’t come free, you know you have to work.
  • He called savings instead of wealth. Savings = that which is left over production – consumption.
  • In today’s world he made 1 or 2 investment decision a year, in the past, 20 years ago he made 20/25 a year.
  • It is important to work with people that are like-minded with you.
  • His shareholder turnover it is much lower than his portfolio turnover. This is a great way to understand that his investors understand what he does and how he manages their money.
  • His position in gold started in 1998, he owned gold bullion for many years, he thought it was mispriced. He owned equities but started to buy the physical metal. Also, gold provides him with the three component: scarcity, permanence and independence from the financial system.
  • Two or three questions he oftentimes made:
    • If I owned this whole company would I want the same people to run it?
    • Would I want to own the entire company? If not, why I want to own a little bit.
    • Is this business likely to be around 20 years from now?

Guiding principles:

principlesprinciples2

 

Sunday charts

If you do not know I have a Twitter account, @saetacapital, that you can follow. Every Sunday I tweet around 10 charts that I found during the previous week.

This is the thread for today:

Enjoy it!

Reflections on the Ten Attributes of Great Investors [notes]

Yesterday I read the report published by Michael Mauboussin called as this post title. Michael is Head of Global Strategy at Credit Suisse. I am fascinated with this report, all the common sense Michael share in it. Also, I would like to recommend the Alphaville podcast with the author.

About teaching:

Teaching imposes a discipline of understanding and communication that few other activities can—save perhaps writing. Inspirational teachers are also diligent students. So a commitment to teaching at a high level demands constant learning and consolidation of knowledge. There is the additional benefit of being around young people who are bright and challenging.

Actual time to be an investor:

As I like to tell my students, this is an exciting time to be an investor because much of what we teach in business schools is a work-in-progress.

Values:

I believe in economic value, the importance of constant learning and teaching, and that diverse input combined with rigor can lead to insight. This is all very consistent with what Charlie Munger, the vice chairman of Berkshire Hathaway, calls the “mental models” approach.

Michael divided his work into 10 attributes that great investors have.

  1. Be numerate (and understand accounting), Michael comments his favourites books:

    Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial ReportsCreative Cash Flow Reporting: Uncovering Sustainable Financial Performance, The Financial Numbers Game: Detecting Creative Accounting Practices, The Art of Short Selling. Financial statements have two goals: 1) translate financial statements into free cash flow and 2) find the link between company’s strategy and how it creates value.

  2. Understand value (the present value of free cash flow). Try to understand the magnitude and sustainability of free cash flow.
  3. Properly assess strategy (or how a business makes money). Two dimensions:
    1. How the company makes money.
    2. The competitive advantage when it earns a return on investment above the opportunity cost of capital and earns a higher return than its competitors.
  4. Compare effectively (expectations versus fundamentals). Human are quick to compare but not very good at it. Here Michael explains the “variant perception” concept, I first here about this concept in a well-know twitter account called @PlanMaestro. Variant perception definition: “He develops perceptions (intellectually sound investment thesis) which are at variance with the general market view. In other words, a view that is at odds with the prevailing Wall Street view. He will play those variant perceptions until he feels they are no longer so.”. Fundamentals are how fast the horse will run, and expectations are the odds.
  5. Think probabilistically (there are few sure things). Here the point is that you need to earn more when you are right versus when you are wrong, even if you are wrong more times than right.
  6. Update your views effectively (beliefs are hypotheses to be tested, not treasures to be protected). Open-minded, period.
  7. Beware of behavioural biases (minimizing constraints to good thinking). Here, Michael, presents Keith Stanovich’s idea between IQ (intelligence quotient) and RQ (rationality quotient). I save the name of the last book called The Rationality Quotient. IQ = “mental skills that are real and helpful in cognitive tasks” and RQ = “the ability to make good decisions”.

  8. Know the difference between information and influence.
  9. Position sizing (maximizing the payoff from edge).
  10. Read (and keep and open mind). Albert Einstein’s quote:”success comes from curiosity, concentration, perseverance and self-criticism”.

Multiples are not valuation but a shorthand for the valuation process. No thoughtful investor ever forgets that. Shorthands are useful because they save you time.

What I found more useful in this report is the following part. To peak performance as an investor, you need some factors. From left to right you can find it.

Captura de pantalla 2017-02-19 a las 21.41.35.png

Selection.

Both Keith Stanovich’s work on IQ and RQ and Phil Tetlock’s work on superforecasting strongly suggest that there’s more to good decision making than traditional smarts measured through IQ. Qualities such as active-open mindedness, thinking probabilistically, an ability to update views frequently and accurately, and persistence are not well captured in tests. Even proxies for intelligence, such as graduating from an elite university, do not do the job.

Deliberate practice.

Done properly, deliberate practice is designed with a specific objective, requires timely and accurate feedback from a coach or teacher, entails substantial repetition, and is only viable for students who are motivated. Deliberate practice is not fun, but it is gratifying because the performance improvements are tangible.

Seth Klarman 2016 year-end letter

I have access to the 2016 year-end letter that Seth Klarman has shared with Limited Partners and stuff.

How important is Trump’s presidency that Seth divided the year between “Before” (44 weeks) and “After” Trump to share his view of the year. The first one was dominated by tepid economic growth, low-interest rate, rich valuations and relatively low volatility. Also, quantitative easing, QE-infinity and negative rate (quite nonrational IMHO).

The election was an inflexion point, “after“, post-election rally, winners and losers (of course, those in most influence Trump’s point of view will win more that the others).

Seth quote the last summer article called “It’s Getting Scarily Quiet in the Stock Market”, this article warned the complacency about the central banking, Seth’s point of view is that the central banks, with their policies, have increased the financial assets. Examples such as The market and Methuselah, Saudis bonds and Austria. The debt expansion was huge in 2016, IMF said last October that world debt is a real thread for 2017. A really good point is that last 35 years the modern world has been living in a bull market, low-interest rates and right now inflation is going up and interest will raise and not much of active managers have experience in this type of market. Seth is critical with this topic:

  1. Whenever interest rates return to more normal levels, these bonds will trade below price
  2. Inflation, if this comeback, these instruments will sell off further.

After

Animal spirits drove US stocks, election benefited infrastructure companies.  News highs, especially shares of those companies expected to benefit most from lower taxes, expanded infrastructure spending, and deregulation. Post-election, interest rates jumped and bonds slumped in anticipation of policy changes and an acceleration in economic growth. As Trump promised, tax cuts and fiscal stimulus will cause higher corporate profits. Also, a relaxation of regulations is expected to boost the banking industry.

“Goldman Sachs notes that the S&P 500, in aggregate, recently traded at 85th percentile of its historical valuation over the last 40 years, while the median company in the S&P 500 had reached the 98th percentile of valuation”

The main point about Trump economy is that “may be able to temporarily hold off the sweep of automation and globalization, keeping jobs at home, bolstering inefficient and uncompetitive enterprises is likely to only temporarily stave off market forces[…] the U.S long ago abandoned protectionist trade policies is because they not only don’t work, they actually leave society worse off”.

For businesses and investors predictability it really importance to make assumptions, model performance and finds decisions. Elections matter, Trump will create investment opportunities and high uncertainty.

“A value investing approach is defensive by nature, emphasising preservation of capital through the purchase of investments with a margin of safety”.

In my opinion, the best part of the letter is the last one, when Seth explain that the key approach is to maintain conservative in weak markets. In top-down approach, you need to be right in the magnitude, path and timing.

The market is in bull market mode as we can see below.

S&P500 sicne 2005