Below is my letter for 19Q1
Download pdf: taovalue_2019_q1_final
Below is my letter for 19Q1
Download pdf: taovalue_2019_q1_final
Below is my newsletter for 18Q3
Download pdf: TaoValue_2018_Q3_final
Chinese tech names are hit hard in the past few months. As holders of a handful of them, I’m curious to know what Mr. Market knows about them that I don’t.
Starting with Tencent, game monetization approval is indefinitely halted, corporate structure is shaking up. Maybe that’s why it lost 38% of its value in past 180 days. How about JD? Founder CEO Richard Liu got into this sexual assault scandal. That must be why it lost 48%% of its market value. YY? Oh, that must be because the new type of short video, e.g. Douyin/Tik Tok gaining traction leading to it’s 43%% market valuation evaporation. BABA? Jack Ma retiring must lead to 34% market value drop.
Well, if they are plausible, what about BIDU, WB, NTES, MOMO, SINA, CTRP & GDS who all happened to lose 30-50% from their recent high? Are there plausible fundamental reasons to explain each of them incurring so similar negative returns? I’m sure financial journalist could help find them if they want to. However, it looks to me such synchronized movements could hardly be explained well by idiosyncratic risks. I just want to see how much these movements are synchronized (correlated), thus can be attributed to market as a whole, rather than for each specific name.
I’m a R person, and below I try to do some simple statistic summary. I also attached my R scripts in markdown file for whomever is familiar with R and may want to play around with it.
Download R Markdown Notes: Link
All these large blue dots indicate highly correlated daily price movement between these names, as well between single names and CQQQ (a Chinese tech ETF).
First, scatterplot the return of them, the best fit line already looks positive and close to 1.
Based on below linear model, slope of CQQQ is highly statistically significant (p value basically is 0). In other words, CQQQ’s return has high power to explain YY’s return. Note YY is less than 3% of CQQQ’s holdings.
In conclusion, my interpretation is that Mr. Market may not know more about each of these individual company than I do, rather it may be more driven by overall fear to macro events.
I recently finished William Thorndike’s book “The Outsiders – Eight Unconventional CEOs and Their Radically Rational Blueprint for Success”, and think it is a great read. As usual, I jotted down the most important lessons & thoughts to me and document them below.
To get an initial understanding of the quality of this book, it is worth mentioning the origin of this book. Thorndike is a PE investor and a founding partner of Housatonic. When he was preparing a presentation to CEOs of their portfolio companies about “what makes an exceptional CEO” circa 2004, Thorndike wanted to do a case study of Henry Singleton, whom he regarded as one of the best CEOs, with the help of a HBS second year student. From there, Thorndike and subsequent then-HBS second year students continued studying 7 more CEOs who had pass his rigorous test (beat annualized returns of both peers & Jack Welch’s GE during their tenures by large margin), one CEO a year. Note that GE during Welch’s tenure has 20~% annualized return, which itself is a very high bar. Along the way, Thorndike found striking similarities between these CEOs and decide to make a book on these traits. Here is a Harvard Business Review short podcast in 2014 about the book & its origin [Link].
Below are important points & thoughts to me:
Note: I have shared these videos via my Twitter account before, however may have missed readers who only follow the blog. Copyright of Weekly in Stocks, all contents are shared for non-commercial knowledge sharing purpose.
These are interviews conducted by a Chinese finance/business media called Weekly in Stocks. Overall, I really enjoyed it and think all questions are really well prepared. As expected, many questions are around China (both philosophy & capital markets).
I think this might be the first time Munger explicitly drew parallel between his & Buffett’s philosophy & practices and oriental philosophies. Quoting from Munger: “…why are these people in China so interested in Berkshire Hathaway and Charlie Munger… and why do the Chinese like the book (Poor Charlie’s Almanack), I think the answer is it sounds Confucian…”, “…If you are a better person, you are likely to be a better investor; If you are a wiser person, you are likely to be a better investor…”
The follow-up interview with Li Lu alone is also of great interest, where he, may be for the first time, talked in details about Munger’s life, their interactions & his lessons learned from Munger, as well as his unique views of Chinese capital market.
Interview with Charlie Munger along with Li Lu [3 parts]
Follow-up Interview with Li Lu [2 parts]
Below is my newsletter for 18Q2
Download pdf: TaoValue_2018_Q2_final
Below is my investor letter for 18Q1
Download pdf: TaoValue_2018_Q1_final
Below is general commentary section excerpt from my investor letter for 17Q4
Download pdf: TaoValue_2017_Q4_final
General and Market Commentary
If anything is to be remembered for the financial markets in 2017, the lack of volatility will be on the list. S&P 500 index, for an example, finished positive for all 12 months, unseen for majority of the investors living today. The unprecedented financial market quietness was also accompanied by the mania in cryptocurrency as all major cryptocoins pocketed astronomical returns for 2017. It is not hard to identify bubbles everywhere under traditional definition, but I find it is meaningful to think through a level deeper. Below is my attempt to find some common lessons by doing quick studies of “bubbles” in three distinct markets. As always, I like to think about the most controversial ones, as they are the most “information-rich”. I hope they are interesting read for you as well.
Tesla (Public Market)
2017 is not Tesla’s best year, as it underdelivered the dream they sold before about Model 3 by large margin. However, Tesla bears are bewildered by the lack of reaction of Mr. Market to negative developments. One possible reason to this phenomenon is the bulls’ almost religious belief in Tesla. That means the time for Tesla short to work out is not the “change of the fact”, but rather “change of collective perception towards the changed fact”.
To see whether this positive collective perception is justified, I think of the Tao (i.e. the societal value it creates and the corresponding return it takes) of Tesla. An alternative way to see it is that Tesla may be Elon Musk’s clean energy social campaign disguised as a corporation. If you in 2003 were given a mission to push the global auto industry to a more innovative and socially responsible (e.g. cleaner energy) direction, what would be your estimate of the time line and budget? Tesla single-handedly took about a decade and 0.08% of the societal value created in 2017 (Tesla EV/Projected 2017 Gross World Production). Not a bad score for a social campaign.
However, whether the incremental societal value would be entirely accrued to Tesla in forms of shareholder value is uncertain. This is why I wish Tesla could have remained private, thus funded by more loss-tolerant classes’ wealth. I also wouldn’t short it, because there is still possibility some incremental value could accrue to Tesla through M&A.
There is no new thing under the sun.
– The Bible
Disclosure first: This piece might be sacrilegious to many value investors. In Nov 2013 (yes, the last Bitcoin “bubble”), I put a small percent of my net worth then into Bitcoin. I have been holding and plan to hold them until it reaches my estimated value (showed below). Please do NOT see this piece as a defense to Bitcoin critics or as investment advices (In fact, I am always ready to change my view, however I just didn’t come across convincing counter-arguments. Or put it differently, I’ve been most of the critics’ place and held similar suspicion before but changed later). I see this piece as an alternative thinking framework to a potential significant invention in human history, and I welcome any sort of comments/feedbacks/critiques.
A few lemmas I want to establish before going further: