Bristlemouth - A Value Investing Blog


A Value Investing Blog

Posted on 23 Mar 2017 by Daniel Mueller

Going Super Mental

Going Super Mental


Today’s AFR contains an interesting article on housing affordability and a new front on the crisis. It addresses the emerging issue of retirees draining their superannuation savings to pay off their mortgages and then go on the aged pension. Effectively defeating the purpose of superannuation.

But in my view, the article fails to highlight the root cause of this.

Continue reading “Going Super Mental”

Posted on 21 Mar 2017 by Steve Johnson

B&C Speakers Shows What Makes a Real Successful Investment

B&C Speakers Shows What Makes a Real Successful Investment


I presented a webinar for Netwealth last week on value investing in small and mid cap stocks. Even after a couple of decades practising value investing, going back to basics gets me thinking about the fundamentals of what we do. And it helps, a lot.

The value of any financial security is the present value of the cashflows it is going to deliver to its owner.

That is the fundamental principle of value investing. How much am I going to get? When am I going to get it? How certain am I? Answer these three questions accurately, buy with an appropriate margin of safety and you don’t need to worry about anything else. The share price can go up down or sideways. It doesn’t even matter where the shares trade at all. The business you own is going to provide you with the return you require.

Despite knowing this, despite repeating it ad nauseam to investors and potential investors alike, I still get lured into letting share prices define our success. Sotheby’s (NYSE: BID) share price has doubled since we bought it, therefore we were right. Countrywide (LSE: CWD) is down 60% over the past few years, therefore we stuffed it up. Continue reading “B&C Speakers Shows What Makes a Real Successful Investment”

Posted on 06 Mar 2017 by Steve Johnson

Blame Central Bankers for the Lack of Productivity Growth

Blame Central Bankers for the Lack of Productivity Growth


They get the blame for a lot these days. Asset bubbles, moral hazard, banking crises, deflation, inflation. It’s all the fault of the central bankers.

Some of the criticism is warranted. Some of it is not. As Sebastian Mallaby concluded in his excellent biography of Alan Greenspan, central bankers don’t have the power many people attribute to them. One contributor to the financial crisis was the widespread assumption that Greenspan had the power to avert it.

But I would like to lay one more issue at the central bankers’ feet. Is the long term decline in productivity growth a consequence of modern monetary policy?

Continue reading “Blame Central Bankers for the Lack of Productivity Growth”

Posted on 03 Mar 2017 by Steve Johnson

Final Week in CIMIC vs Macmahon

Final Week in CIMIC vs Macmahon


Construction giant CIMIC (CIM) has fired its final bazooka in its attempt to gain control over mining contractor Macmahon (MAH). Yesterday it declared that it won’t be extending the bid beyond 9 March and it won’t be raising the price above $0.145.

I’ve received a number of queries from fellow Macmahon shareholders about events over the past few weeks so. With the deadline now locked down, I’ll lay some thoughts out for investors to consider.

We weren’t particularly impressed with CIMIC’s $0.145 bid to start with. They will get no argument from us about Macmahon’s woeful historical performance. The losses being generated at its newish Telfer contract are completely unacceptable and the company hasn’t, until now, been winning enough new work to justify its overheads. Continue reading “Final Week in CIMIC vs Macmahon”

Posted on 02 Mar 2017 by Daniel Mueller

Bears, Bulls and Barbecues

Bears, Bulls and Barbecues


Want to know what a pretty picture looks like in the eyes of a contrarian investor? Today’s Australian Financial Review (AFR) provides the answer. For those who have a hard copy, turn to page 15 of today’s edition. There are three very bearish articles on three different asset classes, Australian stocks, global stocks and Australian bonds. All three quote experts in their field, forewarning investors that all three assets classes are to be avoided, at least for 2017. And if you flick through the pages there are some very bearish articles on the banks and Telstra (TLS). So why am I not partaking in the gloom and doom?

Continue reading “Bears, Bulls and Barbecues”

Posted on 22 Feb 2017 by Kevin Rose

Peelenty of Alternatives to WeWork

Peelenty of Alternatives to WeWork

We have talked about WeWork on a few occasions in this forum. WeWork operates a handful of coworking office spaces in various cities around the world. There isn’t much to the business but investors continue to fall in love with it. Recently the Wall Street Journal reported that Japanese investment giant SoftBank Group was exploring investing “well over $1 billion” in the company. If Softbank closes on the investment, it will imply a valuation for the entire company of more than $17 billion.

The people at Softbank are supposed to know what they are doing. But for the life of me, I cannot understand what they see in the company. While WeWork spaces impress with enough single origin coffee and flavored water to re-hydrate the thirstiest of techies, we are still talking about “office space.” There is nothing stopping another landlord from designing a similar office. Continue reading “Peelenty of Alternatives to WeWork”

Posted on 18 Feb 2017 by Gareth Brown

Demographics for Dummies (and the RBA)

Demographics for Dummies (and the RBA)


There’s a prevalent assumption that Australia is far more urbanised (or should I say suburbanised) than the rest of the world. It’s is being spread by, among others, high-ranking staff of the Reserve Bank of Australia. Those staff have suggested urbanisation is a partial explanation for the gaping difference in dwelling price-to-income ratios between Australia and the US.

According to the RBA’s numbers, the average Australian dwelling sells for almost 5-times average household disposable income versus less than 2-times in the US.

But there’s a slight problem with the assumption about Australian urbanisation being far greater than in the US. While it’s both plausible and widely-believed, it’s also wrong. Last year, I attempted to prove as much—see Statistical Buggery: RBA Urbanisation. Continue reading “Demographics for Dummies (and the RBA)”

Posted on 15 Feb 2017 by Gareth Brown

Europe Takes Off

Europe Takes Off


There is a strong correlation between general economic health and the number of people taking to the skies. It’s held across most individual markets for more than 50 years. Specifically, commercial passenger numbers have grown around 1.5-times real (after inflation) GDP over the long term.

Short term data is noisier. It’s knocked about by factors like oil prices, terrorism fears, pandemics and the health of airline balance sheets. So short term passenger number growth might not be a particularly accurate economic thermometer. With those caveats in mind, we might be seeing early evidence of a ruddy recovery in Europe.

I track a lot of airport data. The below table highlights passenger growth over the past year at large European airports. Each entry shows the percentage change in passenger numbers from the same corresponding month a year earlier.


Growth seems evident, once you understand a few important exceptions. Paris-Charles De Gaulle and London Heathrow are both butting up against capacity constraints, which is why you see little growth in the busier (northern) summer months, but some growth in the off-peak months. Both did well considering their constraints. I’ve added the numbers for secondary London airports Gatwick and Stansted as a counterpoint to Heathrow.

Brussels had a tough year. The terrorist attack at its airport in late March 2016 hit hard. Frankfurt was another underperformer. Lufthansa pilots went on strike later in 2016, but that didn’t coincide with the main weakness in the middle of 2016. The company’s second quarter financial report cites terrorism fears and weather events – but those excuses don’t stack up versus other European airports. The more likely cause is shrinking capacity at Lufthansa. The German national carrier provides about 60% of the airport’s traffic and is burdened by particularly large unfunded pension obligations.

Europe Takes Off

Exceptions aside, passenger growth across most European airports was strong over 2016. An acceleration is evident over the past 2-4 months at most locations. Where more detail has been provided by airports, intra-European growth has generally been higher than growth to or from the rest of the world. And ‘periphery’ countries like Spain and Ireland are growing faster than ‘core’ EU countries, although the core is clearly also doing well.

Even Athens is killing it, though that’s probably more about inbound tourists than in- or outbound business people. Any sunny European spot perceived as safe has been growing recently at the expense of Turkey, Egypt and Tunisia.

I wouldn’t go basing any large macro bets off this (or any other) data. But it’s a good sign for Europe. Economies that are in the doldrums don’t tend to grow passenger numbers at an annual rate of 5-10% or even more, not for long anyway. It’s worth keeping a sharp eye on European passenger numbers over the next few months.

Posted on 09 Feb 2017 by Steve Johnson

GTN and Webjet Don’t Compare Well

GTN and Webjet Don’t Compare Well


The FT Alphachat Podcasts serve two purposes on our holiday travels. They let me catch up on some engaging content. And they put my mildly insomnolent wife into a deep sleep.

Hence I found myself listening to an interview with Michael Mauboussin on a recent slow, end-of-a-long-weekend drive from the NSW South Coast to Sydney. Mauboussin was speaking with the FT’s Cardiff Garcia about the implications of his experience writing his recent paper titled 30 Years: Reflections on the Ten Attributes of Great Investors.

Continue reading “GTN and Webjet Don’t Compare Well”

Posted on 01 Feb 2017 by Daniel Mueller

Be Alert to Directors’ Interests

Be Alert to Directors' Interests


There are many rules of thumb an investor learns early in their journey. One of these is that directors buying stock ought to be positive for the share price and directors selling stock is a red flag.

The theory goes that directors are insiders and should have a better feel for how a company is travelling than us outside investors.

Sure, there could be valid reasons for directors selling stock. But after years of hearing these reasons, they tend to become repetitive and sound more like excuses. “I have a big tax bill this year,” “I’m buying a property,” and “I’m going through a divorce” come to mind.

If a company’s prospects are as bright as many annual reports would lead us to believe, surely these directors could borrow money to hold on to their shares. There seems to be no shortage of money around when directors purchase stock. I’ve never heard one say “I wanted to buy stock but couldn’t cough up the cash.”

With that said, let’s test the theory with some examples from 2016.

Continue reading “Be Alert to Directors’ Interests”

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