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Edinburgh Worldwide IT
Antonio VIvaldi
Posted: 22 January 2018 23:35:24(UTC)
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I have noticed what a stonking calendar year this IT had in 2017. Net assets up by 35%, and share price by 50%! Almost all that "outperformance" came after April last year. Why? What happened?
Sara G
Posted: 23 January 2018 15:03:57(UTC)
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EWI was on a double digit discount until relatively recently so that has certainly contributed, but mostly I think it is due to the shift in focus towards smaller companies / disruptive tech which happened at just the right time to catch the wave of rising valuations. What I particularly like is that they have said they won't sell winners as they start to grow.

MNKS has experienced a similar dramatic change in performance over a slightly longer period following a change of management.

I think Baillie Gifford know what they are doing in terms of investing for growth - SMT being a stable-mate. EWI and MNKS are perhaps less comparatively attractive since the erosion of the discounts, but both are long term holds for me.
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King Lodos
Posted: 23 January 2018 15:12:37(UTC)
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I'm absolutely split on whether Baillie Gifford's pushing of disruptive tech across their portfolios is smart investing or bubble chasing.

I've been very into the momentum play on companies like Tencent, but at the same time, reading older books on investing, this narrative shows up in every era, and contributes to Tech's poor long-term performance .. It's possibly been a lesson in investing in ideas rather than solid businesses
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Keith Cobby
Posted: 23 January 2018 17:00:45(UTC)
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I have more money invested with BG than any other manager. I think value investing is in a hole at the moment (eg Carillion) with dividends under pressure. Since the financial crisis I have moved to growth funds on a total return basis and it will be interesting (and hopefully profitable) to see how BG do from here.
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King Lodos
Posted: 23 January 2018 17:30:53(UTC)
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Well there's value investing (which is what Buffett, Train and Smith do), then there's barrel-scraping.

The thing is, the long-term outperformance of value vs growth is as consistent as stocks outperforming bonds .. You buy growth stocks on 2% earnings yields, and you've already priced in a flawless performance.

The later stages of a bull market are always when momentum takes over, and people find reasons why earnings don't matter – like the whole future's going to be owned by Google and Facebook .. But the key with momentum investing (at least historically) has been getting out before there's a rush for the exits .. There are stocks like Netflix and Tesla on PEs over 200 – they don't even make a profit yet.
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Kenpen2 on 23/01/2018(UTC)
jvl
Posted: 23 January 2018 17:52:35(UTC)
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Recently I read a piece where one of the managers of SMT characterised investment in them, or their holdings, as insurance against disruption.

What if Netflix comes and blows you away, like Blockbuster? Amazon or the next Amazon that we haven't yet heard of? Is there any industry safe? (Banks look at risk to me).

Can you afford not to have a stake in potential disruptors? Etc.
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J Thomas on 23/01/2018(UTC)
Tim D
Posted: 23 January 2018 18:35:40(UTC)
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jvl;55822 wrote:
Can you afford not to have a stake in potential disruptors? Etc.


Take a look at what happened last time everyone got excited about disruptor's "creative destruction". In June 2000 Wired created the Wired 40 Index of the sexy tech "businesses selected for their visionary grasp of technology, innovation, globalism, communication, and strategy". Ought to be a no-brainer, right? How could anyone afford not to have a stake in those companies?

Ten years later Wired revisited how their picks had done. Formatting seems to have suffered some rot in a modern browser, but the short story is $10000 would have been worth $6870.

wired40 10 years on

Who knows where today's wunderkind companies will be 10 years on?
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King Lodos
Posted: 23 January 2018 18:38:41(UTC)
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That's right.

If you could go back 30 years – knowing how disruptive computers and the Internet would be – wouldn't you put all your money in Atari? Wouldn't you assume Tech was the best sector to be in rather than the worst?

I think you could just as easily make the case that the Amazon and Netflix business models are so dependent on market share and margins, that they never become profitable .. But then, maybe AI turns all this on it head? Interesting Charlie Munger quote on this:


“Here's a model that we've had trouble with. Maybe you'll be able to figure it out better. Many markets get down to two or three big competitors - or five or six. And in some of those markets, nobody makes any money to speak of. But in others, everybody does very well.

Over the years, we've tried to figure out why the competition in some markets gets sort of rational from the investor's point of view so that the shareholders do well, and in other markets, there's destructive competition that destroys shareholder wealth.

If it's a pure commodity like airline seats, you can understand why no one makes any money. As we sit here, just think of what airlines have given to the world - safe travel. greater experience, time with your loved ones, you name it. Yet, the net amount of money that's been made by the shareholders of airlines since Kitty Hawk, is now a negative figure - a substantial negative figure. Competition was so intense that, once it was unleashed by deregulation, it ravaged shareholder wealth in the airline business.

Yet, in other fields - like cereals, for example - almost all the big boys make out. If you're some kind of a medium grade cereal maker, you might make 15% on your capital. And if you're really good, you might make 40%. But why are cereals so profitable - despite the fact that it looks to me like they're competing like crazy with promotions, coupons and everything else? I don't fully understand it.”
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King Lodos
Posted: 23 January 2018 19:52:19(UTC)
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I'd say it's got to be brand power.?

There's something about my choice to eat Heinz Baked Beans, or drink Smirnhoff, that seems linked to identity .. The fact Coke and Pepsi coexist isn't a problem, because you choose one or the other – not the supermarket brand .. Kids seem very sensitive to this.

But with airlines, as much as I like Virgin, I'd fly Donkey Kong airlines if they offered lie-flat beds and mood lighting .. Apple may have the perfect tech brand power – no surprise Buffett's buying Apple shares .. But Google and Facebook certainly don't have it.
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Tim D on 23/01/2018(UTC)
Tim D
Posted: 23 January 2018 20:14:25(UTC)
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King Lodos;55825 wrote:
“...If it's a pure commodity like airline seats, you can understand why no one makes any money. As we sit here, just think of what airlines have given to the world - safe travel. greater experience, time with your loved ones, you name it. Yet, the net amount of money that's been made by the shareholders of airlines since Kitty Hawk, is now a negative figure - a substantial negative figure. Competition was so intense that, once it was unleashed by deregulation, it ravaged shareholder wealth in the airline business....”


Hoho... and in the 2007 Berkshire Hathaway letter to investors you can find this gem:

"Now let’s move to the gruesome. The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down."

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King Lodos on 23/01/2018(UTC)
King Lodos
Posted: 23 January 2018 20:33:47(UTC)
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Certainly sounds like Netflix and Tesla .. This is why forums are useful for keeping my behaviour in check.

You obviously can't rule out any of these companies taking over the world – it's just whether these are bets you'd keep buying the dips of?
Big boy
Posted: 23 January 2018 20:49:36(UTC)
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What happened??? (EWI)...Investors got carried away and assets have underperformed NAV. The risk/reward is very high and I would say thank you very much and sell.....always leave a bit for the buyer (not easy for private investors) who gets you out and seems willing to pay a premium.

I have been 100% invested since FTSE 100 was 6000 and last week started to take some cash out and buy Premium Bonds,Zeros and instant access a/c.

See no point in going into bonds and defensive income stocks which will become high risk.
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Tim D
Posted: 23 January 2018 23:38:33(UTC)
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Big boy;55833 wrote:
I have been 100% invested since FTSE 100 was 6000 and last week started to take some cash out and buy Premium Bonds,Zeros and instant access a/c.

See no point in going into bonds and defensive income stocks which will become high risk.


I'm curious about your listing of zeros alongside PBs and cash accounts there.

I'd have assumed they'd behave much like the bonds you want to avoid; riskier even, being behind debt in the repayment queue (although presumably with more return to compensate). Don't know a lot about them to be honest though... but interested!
Ark Welder
Posted: 24 January 2018 02:58:38(UTC)
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King Lodos
Posted: 24 January 2018 04:12:19(UTC)
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If he's not buying them today, it's because the opportunity was a few years ago.

Google's advertising business can be killed by an Adblocker app .. Apple cut support for Flash on a whim .. They could build an adblocker into the next Safari update.

The main problem with Google is people hate them – that's not what you want from a brand .. I bet on Tencent, Alibaba and Baidu, before they started blowing up, because they offered an alternative .. Between their politics and the diversity quota clowns they hire, Google are not a serious company .. We'd flock to a Baidu alternative
Mickey
Posted: 24 January 2018 09:00:29(UTC)
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King Lodos;55846 wrote:
Apple cut support for Flash on a whim


More like because of the security risks associated with Flash.
Alan Selwood
Posted: 24 January 2018 11:00:11(UTC)
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Agreed. Especially out-of-date versions.
Big boy
Posted: 24 January 2018 11:44:00(UTC)
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Remember the higher they go the further they fall...........On the other hand the further they fall the further they rise..
jvl
Posted: 24 January 2018 13:19:07(UTC)
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King Lodos;55846 wrote:

Google's advertising business can be killed by an Adblocker app .. Apple cut support for Flash on a whim .. They could build an adblocker into the next Safari update.

The main problem with Google is people hate them – that's not what you want from a brand .. I bet on Tencent, Alibaba and Baidu, before they started blowing up, because they offered an alternative .. Between their politics and the diversity quota clowns they hire, Google are not a serious company .. We'd flock to a Baidu alternative


Where do you get this from? You must live in a different world to me.

It's not my experience that people hate Google at all. I think they have a mostly positive image. Gmail's free, easy to use, lots of space. Google Maps - free, used by many. Search works, used by most of the world. YouTube - used for everything now. Android's good to me, Calendar works, it all ties in and just works. I use some of its APIs and programming platforms. Documentation on speech recognition APIs could be better but I don't think the public see this!

A few people hate Uber or Microsoft. I don't see the same for Google.

There have been so many adblocker apps, starting from before Google I think...

Flash was rubbish, always the cause of browser crashes. Hated it.
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Jim S
Posted: 24 January 2018 14:09:55(UTC)
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Google has made amazing progress in AI and self learning. As an amateur Go player myself, I'm still awestruck by Alphago's success against top professionals.

It will be very interesting to see where this progress in AI leads Google (waymo etc), also what big competitors will emerge in that AI space (from Microsoft, Amazon, Alibaba, Tencent, Baidu or wherever). They have a big head start I reckon, the big question is how well they can capitalise on that, and in what areas (eg medical technology and genetics, nano technology).
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Tim D on 24/01/2018(UTC)
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