A Value Investing Blog

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 Dec 2016 by Gareth Brown

Forager’s Summer Book List

Forager’s Summer Book List


Books for the Summer Holidays was a post outlining my favourite reads of 2015. We’ve decided to expand the book list this year by getting contributions from everyone in the office. There should be something for everybody on this list. Merry Christmas and enjoy your summer break.

Forager’s Summer Book List  Gareth Brown

The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone

In the same length as my own fulltime working life—22 years—Jeff Bezos has built juggernaut Amazon from scratch. It’s a place where lightning has struck numerous time—Marketplace, Amazon Prime, Amazon Websites Services, Kindle and, perhaps, Amazon Echo.

Steve Jobs and Bill Gates are masterful monopolisers of high margin businesses. In contrast, Bezos actively seeks to monopolise low margin business. Through the book, you can almost see his eyes light up as he explores ideas that are prospectively so low margin that nobody else will want them. He then throws resources, blinding insight and frugality at the problem until it’s sorted, prepared to incur years, perhaps many, of losses in those formative years. Fellow Seattleite Bill Gates once said that most people overestimate what they can do in one year and underestimate what they can do in ten years. Bezos isn’t like most people. Continue reading “Forager’s Summer Book List”

Posted on 25 Nov 2016 by Daniel Mueller

Will Amazon Destroy Australian Retailing?

Will Amazon Destroy Australian Retailing?


How big could, Inc. (NASDAQ:AMZN) be in Australia? There have been recent media reports that the U.S. online giant will hit our shores next year. The company, or at least an unnamed executive, has stated an intention to “destroy” Australian retail. And why not? Australian retail margins are among the largest in the world. But should retailers be shaking in their boots? Will Amazon march into the country like the Roman infantry, taking whatever market share they want? To me, this reads more like the blue sky case. So what does a more realistic scenario look like?


Continue reading “Will Amazon Destroy Australian Retailing?”

Posted on 27 Oct 2016 by Daniel Mueller

Found: A Central Bank that is a Second Order Thinker

Found: A Central Bank that is a Second Order Thinker


After reading Gareth’s blog post on Central Banks: First Order Thinkers?, I wondered whether any central banks are practicing second order thinking. So I combed the globe to find a central bank that looks deflation in the eye and raises interest rates, rather than lowering them. And I didn’t have to venture far from Gareth’s Scandinavian examples.

Located on the western side of the Norwegian Sea, we find the Nordic island nation of Iceland. Its central bank has maintained relatively high interest rates over the past five years.

Continue reading “Found: A Central Bank that is a Second Order Thinker”

Posted on 19 Oct 2016 by Gareth Brown

Central Bankers: It Wasn’t Me

Central Bankers: It Wasn’t Me

The recent Financial Times article Sweden’s central bank chief says negative rates ‘undramatic’ is worth a quick read. In it, Riksbank head honcho Stefan Ingves roles out a message similar to what we’ve heard from other central bankers all around the world.

To summarise, Ingves is saying:

  1. Negative interest rates – currently minus 0.5% – have been ‘undramatic’. It hasn’t impacted banks or citizens unduly.
  2. The Swedish economy is booming.
  3. Bad loans aren’t a problem.
  4. Some other idiots appear to be causing a housing bubble. Sweden’s property market is out of control.

Continue reading “Central Bankers: It Wasn’t Me”

Posted on 17 Aug 2016 by Steve Johnson

BHP Billiton’ $8bn Loss Marks the Turning Point

BHP Billiton’ $8bn Loss Marks the Turning Point


Yesterday’s record full year loss will mark a turning point for BHP Billiton (BHP). The Big Fella, as BHP is affectionately known, got far too big for his boots.

We won’t be seeing senseless acquisitions for a long time. The management team is going to get back to focusing on operating the most efficient mining assets in the world – South32 (S32) has halved its cost of producing some commodities since separating from BHP, which must leave shareholders of the latter wondering what their management team was doing. And the directors have finally sent shareholders the message they had already worked out for themselves – a constantly increasing dividend is an idiotic policy for any business, let alone one as cyclical as a miner.

I discussed BHP this afternoon with Ticky Fullerton on ABC’s The Business (see video below).

It is a perfect example of what I was talking about in Monday’s post (Don’t Lose Sight of Blue Chip Benefits). Some took my comments as a ringing endorsement of the value on the offer at the top end of the market. That’s not the case – we still don’t own one of the top 30 stocks. I just don’t think that now is the time for the average investor to give up on resilient large businesses and chase last year’s returns in small and mid caps. A stock like BHP, owner of some of the world’s best mining assets, is certain to be alive and profitable in twenty years’ time. And today’s price is reasonable. I can’t say the same for some of the rubbish being flogged at the smaller end of the market. Continue reading “BHP Billiton’ $8bn Loss Marks the Turning Point”

Posted on 15 Aug 2016 by Steve Johnson

Don’t Lose Sight of Blue Chip Benefits

Don’t Lose Sight of Blue Chip Benefits


An article in the Australian Financial Review last week suggested Australian super-fund investors are losing faith in blue chips.

“In the biggest change in investment intentions since the global financial crisis, 55 per cent of do-it-yourself scheme trustees said they intended to invest in blue chips over the next 12 months, down from 65 per cent who had that intention a year ago.”

And it’s not just retail investors. One of the country’s largest and oldest listed investment companies, AFIC, is switching from blue chips to mid-cap growth stocks.

That is not surprising. Last financial year, the biggest 20 stocks under-performed the wider market by the largest margin since 1989. If you owned the market-capitalisation weighted index, your return for the 2016 financial year was close to zero. An index that owned one share in every stock in the ASX 300 would have returned almost 10%.

Investors, professional and DIY alike, have a tendency to base their decision making on the rear view mirror. In case you need a reminder of how that tends to work out, refer back to my article International Ship has Already Sailed from July last year and then take a look at the returns from international funds in the subsequent 12 months (mostly negative).

Is the same mistake being made today? Continue reading “Don’t Lose Sight of Blue Chip Benefits”

Posted on 03 Aug 2016 by Gareth Brown

Vancouver Cools Foreign Bid for Property

Vancouver Cools Foreign Bid for Property

Like Melbourne and Sydney, the Vancouver real estate market has been hot for a decade, and red hot the past 12 months. Property is largely out of reach for the median city-dweller in most parts of the city.

Like Melbourne and Sydney, perhaps more so, foreign money, particularly Chinese—is being pointed out as a major contributing factor. A lot of focus in recent months has been on foreign money from potentially corrupt sources.

The local and British Columbia governments have copped a lot of criticism over the issue—accusations from neglect through to complicity and profiteering. In response, and likely with an eye on the polls, they’ve made an interesting move. Continue reading “Vancouver Cools Foreign Bid for Property”

Posted on 02 Aug 2016 by Daniel Mueller

Reporting Season and the Dollar

Reporting Season and the Dollar

Reporting season is on our doorstep. This semi-annual affair, occurring every February and August, is where companies report their half year and full year earnings. It can be a time of backslapping or a time for airing dirty laundry. And its lead-up is associated with an abundance of crystal ball gazing.

At this time of year, broker reports and the financial press are plastered with expected themes for reporting season. Unsurprising, the predominant theme for this reporting season is the ongoing low growth environment, with sales growth hard to come by. Companies that focus on reducing costs will be the ones rewarded with earnings growth. While this theme has been prevalent for several years, and will likely continue for several more, one theme that might not continue for much longer is the impact of the lower Australian dollar on earnings.

Continue reading “Reporting Season and the Dollar”

Posted on 28 Jul 2016 by Gareth Brown

Central Banks: First Order Thinkers?

Central Banks: First Order Thinkers?

Inspired by Daniel Kahneman, it’s become popular to think of our brains as dual-track systems. Whether referred to as our Fast and Slow brains, System 1 and System 2 or First Order and Second Order thinking, they all describe the same thing—an intuitive, rapid, ancient ‘reptilian’ brain very good at roughly working out consequences most of the time; and a slower, uniquely human, neo-cortex driven brain that takes more deliberate effort to fire up but that is much better at solving unique problems and consequences of consequences.

Perhaps I’m overly sceptical, but unprecedented actions by central bankers around the world—zero interest rate policy (ZIRP) usurped by negative interest rate policy (NIRP), asset-buying programs being extended into corporate bonds and even shares, a ‘whatever it takes’ mentality—strikes me as firmly first order thinking.

Take the dreaded deflation, or ‘everyday lower prices’ as Jim Grant once put it. Deflation itself is nothing to be feared—the US had some long and deep periods of deflation in the back half of the 1800s, a time that coincided with its rise to global superpower.

In a high tech world dominated by Moore’s Law, deflation in some important parts of your consumer basket is assured. In some respects, deflation is the very essence of capitalistic progress.

But wider, entrenched deflation is hell for borrowers. In an inflationary world, your future interest payments deflate away in real terms. In a deflationary world, the converse happens—your future interest payments inflate. Meanwhile, your levered asset is probably dropping in value too. So deflation is acutely painful in an over-leveraged economy.

Continue reading “Central Banks: First Order Thinkers?”

As featured in