Bronte Capital monthly letters

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#11
What is considered pro-stakeholder is subjective, and changes over time. And what the individual investor thinks does not matter, it is the general public that has the power to direct attacks against companies thought to be 'evil.'

The 'evils' of alcohol have been known for more than a hundred years, and it led to the prohibition era in US in the early 20th century. When the ban was repealed and alcohol became free again in the 1930s, sales grew over a period of 60 years or so. If you were a shareholder of the largest beer/alcohol companies, you could have held those stocks for your entire investing lifetime (say, 40 years), and only see it continue to go up until you liquidate your portfolio or kick the bucket. Ditto for cigarette stocks. It was 'bad' for stakeholders and yet it grew tremendously. I think investors of that time wouldn't worry about whether businesses are pro-stakeholder or not.

Considering the topic more broadly, I think it is hard identify a business or industry that can be accepted as being pro-stakeholder, to all stakeholders. Someone (e.g. labour, customers, suppliers) or something (e.g. climate/environment) is usually being 'exploited' along the value-chain. Sometimes, what some stakeholders think is good for them is considered bad by others.

Going back to US in the 1930s again, there was a company known as A&P which ran grocery stores, the modern day equivalent is probably 7-11 (or Walmart). It spawned thousands of stores by winning consumers over with low prices through its purchasing power. As with Walmart, it was so successful that it drove out the 'mom and pop' stores, and that got the attention of regulators/legislators, which attacked them over a period of 10+ years or so until the 1950s. A&P never recovered and died a little everyday (and then faster when the giant discounters arrived) until its eventual demise in the 2000s. It is hard to believe a business can be attacked just because it was so efficient in delivering its goods and services (imagine the same today for Walmart/Costo) but that's what happened then.

Facebook can be evil in the design of its product which causes addiction and other mental health issues. But so long as the general public does not think so, then shareholders need not worry that FB will come under attack from regulators.

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Bronte's results have not beaten its benchmark. The fact that the people running Bronte are professionals with good/great credentials, again tells us the enormous difficulty of beating the market.

Like myself, and myself some other VBs, they lament at the sky high valuations of some stocks, while going through the discount bin of old economy stocks, hoping to find some hidden treasure. They face the same situations as I or we do; buying cheap stocks thinking they are cigar butts (or turn arounds, etc) but which turn out to be value traps.

If you encounter people telling you how awesome and easy value investing is, and which they are so eager to teach you for a small fee (or worse, free), they are probably WB/CM, or people who have no idea what they are talking about.
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#12
(31-10-2021, 04:47 PM)karlmarx Wrote: What is considered pro-stakeholder is subjective, and changes over time. And what the individual investor thinks does not matter, it is the general public that has the power to direct attacks against companies thought to be 'evil.'

..

Bronte's results have not beaten its benchmark. The fact that the people running Bronte are professionals with good/great credentials, again tells us the enormous difficulty of beating the market.

..

Many people can enjoy alcoholic drinks occasionally without negative health effects, some studies even cites potential health benefit of consuming certain alcoholic drinks in moderation. 

It's hard to find a redeeming quality of Tobacco, or argue that it is "net-positive" to customers and society while enriching employees and shareholders. 

While I do agree it may be over-reaching and cause backlash for governments to outright ban Tobacco and Alcohol without solving any of the underlying issues (see Prohibition); it's another thing for shareholders to actively seeking out investments in Tobacco and MLM names.

On the actual long-term profitability of owning such companies. I think it's far overstated, especially today where information is much more accessible; ESG becoming a bigger and bigger factor for institutional investors; and not just activists, but increasingly many well-capitalized entrepreneurs and startups are actively trying to disrupt such industries. Which is also reflected in the relative underperformance of Big Tobacco in the recent years. 

Even "old economy" investors like Warren Buffett understands this: https://www.fool.com/investing/general/2...hilip.aspx

Facebook has underperformed it's benchmark (the Nasdaq Composite) in the last 5 years. My prediction is that, many bulls focusing on short-term profitability and undervaluation will be disappointed in the next 5 years as well.
“If you buy a business just because it’s undervalued, then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.” - Charlie Munger
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#13
(31-10-2021, 04:47 PM)karlmarx Wrote: Bronte's results have not beaten its benchmark. The fact that the people running Bronte are professionals with good/great credentials, again tells us the enormous difficulty of beating the market.

Like myself, and myself some other VBs, they lament at the sky high valuations of some stocks, while going through the discount bin of old economy stocks, hoping to find some hidden treasure. They face the same situations as I or we do; buying cheap stocks thinking they are cigar butts (or turn arounds, etc) but which turn out to be value traps.

If you encounter people telling you how awesome and easy value investing is, and which they are so eager to teach you for a small fee (or worse, free), they are probably WB/CM, or people who have no idea what they are talking about.

Actually for the record Buffett mentioned last AGM that investing is not easy, when he was talking about the automobile boom. That's the context why he recommended those not keen to put in effort for investing to do ETF, which he has been frequently misquoted.

So if I encounter people saying how awesome and easy value investing is, I tend to presume it's the latter Big Grin
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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