New Year Updates

Happy new year to everyone! Apologies for the lengthy silence, I was travelling for most of December and took a short break from writing to catch up on other things. Below are some long overdue general updates as well as responses to a few questions (paraphrased) that I have received.

Travel recommendation: Kanha Tiger Reserve in Madhya Pradesh. According to WWF estimates, the global tiger population has grown some 22% over the last five years following decades of nearly continuous decline. This resurgence owes much to public and private conservation efforts in India, which is now home to ~70% of the global tiger population. Kanha is truly a role model for national parks in India and offers great hope for wildlife ecosystems in the country. For those looking to plan a trip, I highly recommend staying at the Shergarh lodge.

Below is a photo from my trip in December:

Book recommendation: Shoe Dog is Phil Knight’s memoir about creating Nike. It was my favourite book of 2016. Bill Gates writes that it is a “refreshingly honest reminder of what the path to business success really looks like. It’s a messy, perilous, and chaotic journey riddled with mistakes, endless struggles, and sacrifice.” Here is the link to his review of the book.

Portfolio additions: Two new positions are NetEase and TK Group, both companies I have followed for some time. I hope to write up and make public the summary investment case for each over the course of this month.

NetEase is one of the largest online and mobile gaming companies in China, although it’s often overshadowed by Tencent. The company has a strong pipeline for 2017 with the release of 12 new game titles while existing titles (e.g. Onmyoji) are also gaining traction in markets outside of China. It is a high growth, high ROIC company that trades at a reasonable valuation (<15x forward earnings). Management has also proven to be shareholder-oriented over the course of its ~15 year history as a publicly listed company.

TK Group is a manufacturer of moulds and plastic components with a big revenue opportunity in the smart and digital devices segments. It sells to a relatively diverse base of end customers with little concentration risk (largest customer is ~9% of sales). The company currently trades at a >10% forward earnings yield and offers a 5% current dividend yield. It also has a net cash balance sheet.

Watch list: Netdragon Websoft. Jacob Ma-Weaver of Cable Car Capital wrote up an excellent report on the company back in 2014. Since then, the education business has become even more critical to the investment case – the division now contributes more revenue to the group than online gaming following the acquisition and consolidation of Promethean. I believe the company has a promising portfolio of education technology products (I have some background in this space) and 2017 could be a breakout year.

A word on stock recommendations: In investing, frequency of correctness is not as important as magnitude of correctness. The latter is often a function of the relative size of and correlations between positions in a portfolio. Simply following individual stock recommendations without understanding how the overall portfolio is constructed can lead to poor results. Adjusting ideas by conviction (e.g. % of portfolio) might be a better approach.

US investors that I track or follow: Very few. The ones closer to the “permanent capital” end of the spectrum are probably the most interesting – SPO Partners and MSD Capital are two examples. Stanley Druckenmiller is also very smart and tends to calls things as they are, but it’s not always easy (or practical) to apply his insights in the context of a personal portfolio.

Passive vs. active investing: The arguments for passive investing are compelling. There are, however, some advantages to managing only your own money (permanent capital, less compulsion to always be doing something etc.) and investing relatively small sums of capital. For more on this topic, I recommend reading Aswath Damodaran’s recent series of blog posts.

The value of cash: This is another topic that divides opinion. It is very difficult to time the market, but now doesn’t seem a bad point in the cycle to be holding more cash if you can’t find any suitable investment opportunities. Both Jesse Felder and Bruce Flatt have recently written posts regarding the optionality of cash.