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

 

II Annual azValor Investor’s Conference

Value investing asset managers industry in Spain is in a great moment. New players are joining the club, for example, the former Bestinver partner and CIO Francisco García Paramés started his new company at the end of last year. This week two event happened: the Spanish regulatory approved Cobas Fund‘s new funds and the II Annual azValor Investor’s Conference took place in Madrid. azValor was created by García Paramés former partners at Bestinver.

For the last 4 years, I have been following the CIO of azValor, his wisdom, humility and knowledge have made him a key player to follow in the world of investment in value investing.

If you master Spanish I highly recommend you to watch this conference here.

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