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    « September 2007 | Main | November 2007 »

    October 31, 2007

    Africa: Are Brighter Days Ahead for Investors in the Dark Continent?

    I read several months back that the African continent has been growing at an average rate of 5%. That's nowhere near as sexy as Mainland China or India. But it's still not bad.

    And I am reminded of that when reading William Pesek's latest Bloomberg column on Chinese investment in the Dark Continent.

    I'm not familiar with the specific Chinese bank Pesek focuses on. And you know I doubt his speculation on why Warren Buffett sold PetroChina. But the general thrust of his column seems spot on to me.

    Africa could be -- note the words "could be" -- the perfect contrarian emerging markets play. That is, everyone is raving about Mainland China and India (and even Asia). Yet a few years from now we all wake up and start reading -- after the fact -- that pan-African investments have outperformed the emerging markets darlings.

    Please understand: that is not a prediction.

    But it wouldn't be all that surprising for those of us often doubting the conventional wisdom. (Then again, any continent with Robert Mugabe, well, you know.)

    And it's the reason I've kept my eye on Lonrho PLC, the conglomerate trading in London. It offers Western style corporate governance and the company is investing in a range of diversified businesses in a variety of African countries. The problem is it has shot up in price a good bit since I found out about it. And, even more importantly, I have a hard time finding hard information about it (other than its Website).

    Anyone with good information on the company, feel free to shoot me an email or leave a comment.

    October 30, 2007

    Taking Profits in Fairfax Financial

    I sold half my position in Fairfax Financial (FFH/NYSE) on Monday (10/29/07) at $259.92 per share.

    Regular readers will recall that I first mentioned Fairfax Financial on this blog in May 2005 at $132.50 per share. I boosted my share count by 30% in June 2006 when the shares hit the bargain price of $92.00. Then in October of that year I sold those shares for $145.74.

    Now enough Fairfax stock has been unloaded to get the original capital investment back (pretty much a hard-and-fast rule for me), yet the share price has appreciated so that the company remains a full portfolio position.

    Cash levels are higher in the portfolio than I'd like -- I prefer to be fully invested. Having cash is the byproduct of a couple of things.

    One is the good fortune of having some investments that have actually worked out, or are working out. The other is a lack of new investment ideas. I'm looking to put some cash to work in the near future, either through averaging down some existing positions or establishing new positions. As always, I'll post any portfolio movements here. So stay tuned.

    October 26, 2007

    Now It's Malone and Diller Who Are Dancing

    Remember when John Malone and Rupert Murdoch was dancing around an asset swap? The one that would give Liberty Media something substantial in return for its shares in News Corp.?

    After going round and round for a bit, the fancy footwork resulted in Malone getting the controlling stake in The DirecTV Group (DTV/NYSE).

    Now The Wall Street Journal reports that Malone and Barry Diller doing a dance. A little bit different, but similar just the same. Diller runs IAC/InterActiveCorp -- in which Malone's company owns the controlling stake.

    According to the linked story, Malone isn't content with Diller's performance. And Diller is less than happy himself:

    "There was a time when there was, I think, a 20 percent Barry premium" on Wall Street, Mr. Malone noted during a recent interview in his Englewood, Colo., office, which looks out at the Rocky Mountains. "Today you could argue there is a Barry discount."

    Mr. Malone is looking to unwind the complex business ties that link him to Mr. Diller. So is Mr. Diller, who eventually wants his independence. "We've been frustrated with each other at times," says Mr. Diller, who hastens to add that he believes the relationship is still working.

    But thus far, they haven't been able to figure out how to split up. Years ago, Mr. Malone gave Mr. Diller the power to vote Liberty Media's shares in IAC. An asset-swapping deal that took shape earlier this year fell apart. And now Mr. Malone is asserting his influence. "The hook is set. It is our company," he says of IAC. "Barry ain't going to be able to spit the hook."

    That points to the difference between this situation and the one with Murdoch. That was a case of Murdoch being uncomfortable with Liberty Media's stake in his company. This one has Malone in an even stronger position.

    What's going to happen? I have no idea. But I'm comfortable with John Malone, and certainly appreciate the steps he's taken to realize value since recommending Liberty Media on this blog. (As you know, Liberty Media has split its assets into two tracking stocks since then -- both of which I continue holding and view as a single portfolio position.)

    And I think that will be the case regardless of how long he and Diller tiptoe around each other.

    October 25, 2007

    Matthew Lynn Looks at HSBC and Chairman Stephen Green

    When not writing regular columns for Bloomberg, Matthew Lynn occasionally pens fine business pieces in The Spectator. His latest is on HSBC and especially Chairman Stephen Green.

    I've never owned HSBC stock and remember thinking (at the time) that its purchase of Household in the US was, if not a mistake, not well timed. But with HSBC suffering from Household's subprime involvement and the refocus on Asian growth, perhaps this is one to keep an eye on.

    Back to Lynn's article:

    HSBC is a curious beast, born out of colonialism yet despite that, perfectly placed to ride the wave of 21st-century globalised capitalism. It was founded as the Hong Kong & Shanghai Banking Corporation by a Scotsman, Thomas Sutherland, in 1865, and has always been dominated by Scots. For much of its history, it was just one among many colonial banks — until the explosive post-war growth of Hong Kong and southeast Asia carried it into a higher league. In 1992 it came home, both metaphorically and financially, buying the Midland Bank and switching its headquarters to London.

    And today? HSBC is the 13th largest company in the world. With a market cap around $230 billion. Meaning it is hard to see it ever being a takeover target.

    So maybe it's not worth keeping an eye on after all?

    Buffett Recommends Caution on Chinese Stocks

    Warren Buffett urges caution on buying stocks in China, as reported by the Financial Times:

    Speaking on a visit to Dalian in north-east China, Mr Buffett said he was always sceptical about markets that had risen as sharply as Chinese shares have. “We never buy stocks when we see prices soaring,” said Mr Buffett, the renowned investor and chairman of Berkshire Hathaway the investment group. “We buy stocks because we are confident of the company’s growth. People should be cautious when they see prices rising.”

    The linked article provides this about a certain Chinese oil company:

    Mr Buffett was speaking a week after announcing that Berkshire Hathaway had sold its entire stake in PetroChina, the Chinese oil group. Mr Buffett made the initial investment in 2003 and the share price has increased by more than seven times since then. “It was an easy decision to buy PetroChina. It was one-third of what it was worth, maybe a quarter,” he said. “I doubt in the present market I would find something like that as the market has been too hot.”

    October 23, 2007

    Hard Assets Headed Higher?

    Doug French thinks so after the relatively turn out at this year's Hard Assets Investment Conference at Mandalay Bay in Las Vegas.

    He reviews the whole two-day event, freely admits some of the big names of the past weren't at this year's conference (Jim Grant was a previous keynote speaker, for example), and gives this cautionary advice to anyone thinking about putting money in this particular game:

    All should remember that resource stock investing is not for the faint of heart. As James Dines quipped, “If you want to double your money with no risk, fold your cash in half, and put it back in your pocket.”

    What a great line. I chuckled to myself when reading it the first time. I may or may not make money with gold and other hard assets over time -- you know I don't currently own any of them -- but we can all profit by remembering Dines' words as reported by Doug French.

    October 22, 2007

    Wise Words from Charles Brandes

    If you've practiced the value approach for any time at all, you've certainly suffered the pain of buying an undervalued stock -- only to see it fall further.

    And that's entirely apart from those times you or I are wrong about making the purchase in the first place.

    One of the benefits of reading -- and reading some more and then still more -- is coming across wise words that remind us to keep focused on the long term:

    Charles Brandes, founder of Brandes Investment Partners, said in his book Value Investing Today, that short-term periods of underperformance are part of the investing process.

    "Don't expect to achieve financial success overnight. There will be periods when stocks aren't performing well. That is when patience becomes especially important to your long-term success."

    Value investors commonly buy companies that are considered cheap because they are unpopular with the investing public, or the marketplace is over-reacting to negative events affecting the company.

    Sometimes, after a value manager buys an undervalued company, its stock price drops even further. But they believe this decline further increases the margin of safety, providing investors with a great opportunity to buy more at a discounted price.

    What it also does, in the short-term anyway, is negatively affect performance.

    Regular readers know I suffered shorter term losses in stocks like Deckers and General Motors and Fairfax Financial before they turned out winners. Deckers closed out so that was a winner for certain. GM and Fairfax could become losers yet, but I seriously doubt it. Let's see what the future holds for -- you guessed it -- my two Japanese consumer lenders. Plus Mueller Water and Media General.

    What Would It Take for Warren Buffett to Buy Back PetroChina?

    The answer is apparently a lower stock price:

    Despite the increasingly vocal criticism of his shareholding, Mr Buffett insisted the decision to sell his remaining stake was driven by valuation issues rather than politics. At a Berkshire Hathaway shareholders' meeting earlier this year, Mr Buffett opposed a motion that would have obliged it to divest its stake. The motion was defeated.

    Mr Buffett has left the door open to a return to the share register of China's biggest company. "If it went down a lot I'd buy it back," he told Rupert Murdoch's Fox Business Network in an interview, admitting that Petrochina's recent share price performance meant he had "left a lot of money on the table".

    Why Aiful May be a Takeover Target

    The reason, given in this Bloomberg report, is that Aiful (AIFLY/OTC) is this:

    Aiful may also appeal to investors because unlike Acom and Promise it has no ties to Japanese banks, increasing the possibility it might become a buyout target, according to Minoru Hattori, an analyst at Okasan Securities Co. in Tokyo.

    "There are expectations a slowdown in interest rebate claims will support consumer lender earnings,'' Hattori said. "Aiful is also independent, so it can more easily become an acquisition target than Acom or Promise.''

    The linked article notes that value investment firm Brandes has again increased its stake in the other Japanese consumer lender I own, Takefuji (8564/JP or TAKAF/OTC).

    As regular readers know, and as I've stated repeatedly, I am underwater on Aiful and Takefuji.

    October 19, 2007

    Cashing Out of Nikko Cordial

    I sold the remaining stake in Nikko Cordial (NIKOY/OTC) this morning at $14.25 per ADR. I first mentioned Nikko Cordial on Controlled in May 2005 at the split-adjusted price of $8.64. I sold one-third of the position in March 2006 at $16.30.

    In retrospect, I would have been better off dumping the entire position north of $16, but that's hindsight. I thought at the time the company had more to go. And I think Citigroup is getting it at a good price.

    With today's sale, plus dividends collected along the way, the position closes out +79.8%.


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