tag:blogger.com,1999:blog-16021779790604414742024-02-02T15:26:02.257-08:00To Invest With Integrity (or The Memoirs of a One Legged Investor)A Diary of My Investing Journey- mainly to keep me straight and honest!Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.comBlogger130125tag:blogger.com,1999:blog-1602177979060441474.post-76725336596059433192021-11-23T16:41:00.002-08:002021-11-23T16:46:03.649-08:00Drug Discovery Prologue (Dunning Kruger Saga Part 2)<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhafcAjJ5SE1_Ift2OYuJSjtuDTvpibsHc0qScOC_2dqFs__0u4frvWCaeCTCANZpKYvzQGO9UJMzLNIFLhaRMWsLsb_C8Ou-sv12zZVc2W-AVrEh_aCNAbnCO1wU2fJy9kfZ2-z36N8DI/s1001/Dunning-Kruger+Graph+2+%2528002%2529.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="452" data-original-width="1001" height="144" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhafcAjJ5SE1_Ift2OYuJSjtuDTvpibsHc0qScOC_2dqFs__0u4frvWCaeCTCANZpKYvzQGO9UJMzLNIFLhaRMWsLsb_C8Ou-sv12zZVc2W-AVrEh_aCNAbnCO1wU2fJy9kfZ2-z36N8DI/s320/Dunning-Kruger+Graph+2+%2528002%2529.jpg" width="320" /></a></div><br /><span style="font-family: inherit;"><br /></span><p></p><p><span style="font-family: inherit;">Drug discovery is awfully
slow, expensive and prone to high failure rates.</span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">About 96% of drugs
being developed will fail. Some researchers have estimated that the current
probability of success is not much better than a random approach. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">The average cost of
bringing a drug to commercialization is estimated to be between $1b to $2.6b.
This cost figure includes cost expended on the many failures. Over the last 7
years, the average costs have risen by over 100%. At current trends, within 20
years, the average cost per drug to commercialization will balloon to over
$20b.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">The average time to
bring a drug from discovery to market ranges between 10 to 15 years. <o:p></o:p></span></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">In 2019, the
pharmaceutical industry spent $83 billion dollars on R&D. This figure is
likely to be much higher in the wake of COVID19. Adjusted for inflation, this is about 10 times what the industry spent per year in the 1980s. For the
industry as a whole, over ten years from 2010 to 2019, Deloitte’s estimated
the returns on R & D has fallen from 10% to 1.9%. In 2020, the return
increased slightly to 2.5%.<o:p></o:p></span></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">The major causes of
failure in drug discovery come from a combination of efficacy and side effects.
Other significant factors include commercial factors and avoidable errors such
as bad trial designs and non-compliance with regulatory requirements. <o:p></o:p></span></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">This is a problem that
is in desperate need of a solution. The size of the pharmaceutical industry is estimated
to be about USD$1.5t in 2020, and this is projected to grow at about 7% CAGR
for the next 8 years.</span><o:p></o:p></span></p><p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: inherit;">The next blog post will examine the fundamental reasons for the dismal outcomes in drug discovery. Then we will take a stab at the possible solution providers.</span></span></p><p class="MsoNormal">Yours One Legged</p>Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-45433037962465837732021-11-18T21:25:00.003-08:002021-11-21T23:06:39.434-08:00Biotech Investing- A Failed Approach (Dunning Kruger Saga- Part 1)<p><br /></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjbUrmzIdUY_S0vdqSKaa4kNEPBq_ElxHe1X5JA76ajIqueeUdQMghXr-tvm6kMRrR4no43pnRYavdajP80kuDUVnbcTaN-Zri_DRNkHFLQHW6KicvsrCLxejdeyCUZ3iagKpJ-2FNhkDk/s999/Dunning-Kruger+Graph+1.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="454" data-original-width="999" height="226" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjbUrmzIdUY_S0vdqSKaa4kNEPBq_ElxHe1X5JA76ajIqueeUdQMghXr-tvm6kMRrR4no43pnRYavdajP80kuDUVnbcTaN-Zri_DRNkHFLQHW6KicvsrCLxejdeyCUZ3iagKpJ-2FNhkDk/w437-h226/Dunning-Kruger+Graph+1.jpg" width="437" /></a></div><p>A lesson from my recent pivot into the lifesciences and healthcare field is an
old familiar one. </p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">The first
area I explored is the field of drug discovery. More particularly, single
product narrow focus drug discoverers. It is the equivalent of looking at
mineral explorers listed on the ASX. The main rationale for this approach is
that drugs are important drivers of the
entire industry. I need to first understand the drugs and treatments in order to
understand the ecosystem.<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">Being a
numbers person, naturally I started looking at the various published studies on
the historical success rates of various drugs in different areas eg oncology,
vaccines, infectious diseases, etc. The supposition is that if I know the
probabilities of success, I may be able to put bets on expected positive
outcomes. I could then size the positions based on the Kelly Criterion and run
a portfolio on this basis.<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">For
example, say the base historical success rate of oncology is 3%. If the total
addressable market for a particular drug in development is over $1b, we can
estimate that if the drug achieves commercial success, the market cap of the
company should be well over $5b. Given a 3% success rate, the
entry price for a positive expectancy must be below $150m (assuming no dilution).<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">Let’s say
we can get an entry at $100m. At 3% probability of success based on being undiluted
(an unrealistic assumption already), but with a potential 50 bagger, we have a positive
expected outcome. The Kelly Criterion based on this number says we should risk
1% of the portfolio. A more practical half Kelly stance puts us on 50 basis
points.<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">Let’s now say
we can find 200 positions at 50 basis points to fill out our entire portfolio. What
can possibly go wrong? <o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">We have
just made an assumption of independence of outcomes between all the bets. In
other words, we are assuming all of them are separate throws of dice with each
outcome not influencing one another. Biology does not work that way, so drugs
seldom work (or don’t work) that way too. Developments with one drug candidate can
have significant influence on many other drug candidates in adjacent areas.
When the debris has settled, I might just find that 20% of my portfolio has
been wiped out because they are in essence all connected in some way. It could
be a particular biological pathway, it could be a mechanism of action, it could
be a flawed delivery mechanism, it could be a previously undiscovered genetic
problem, it could be a downstream side effect, it could really be anything if I
just did not know where to look.<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">More
importantly, my competitors will usually have an army of 15 or more PhDs in
various areas of medicine and science, and they collectively have over 300
years of experience. They have expert networks and resources from which to draw
upon. They are paid very well to monitor a much larger pool of drug candidates
in development, way bigger than my pool of 200 that I will struggle to just
keep up with. <span style="mso-spacerun: yes;"> </span>And I bet you they knew where
to look well in advance.<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">This is one
contest I want to avoid.<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">Let me know
your thoughts in comments below.<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN-US" style="mso-ansi-language: EN-US;">Yours
One-Legged.<o:p></o:p></span></p>Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-15065559715425281642020-06-22T20:03:00.004-07:002020-06-22T20:08:02.869-07:00Good Articles I Read RecentlyMorgan Housel on Things That Will Never Change- <a href="https://www.collaborativefund.com/blog/same-as-it-ever-was/">here</a>.<br />
<br />
Morgan Housel on why tail end events are all that matters- <a href="https://www.collaborativefund.com/blog/the-three-sides-of-risk/">here</a>.<br />
<br />
Li Lu- on the practice of value investing, the role we play as capital allocators, and why speculation is a zero sum game- <a href="https://www.longriverinv.com/blog/the-practice-of-value-investing-by-li-lu">here</a>.<br />
<br />
Enjoy and Prosper (but keep your distance),<br />
Yours One-LeggedPeter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-77414390522659681662019-12-22T18:06:00.001-08:002019-12-22T18:06:11.048-08:00Merry Xmas and a Happy New YearWell folks, we are closing in on another year.<br />
<br />
I will be taking a short break for about 5 weeks.<br />
<br />
Please have a safe and merry Xmas and a very Happy New Year!<br />
<br />
Yours One-LeggedPeter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-77611040785697637642019-11-13T22:00:00.000-08:002019-11-13T22:00:33.879-08:00Account Recovered!Folks, sorry for the absence.<br />
<br />
To cut a long story short, I lost my password to this account.<br />
<br />
I have managed to somehow recover and reset the password.<br />
<br />
So yes, we are back!<br />
<br />
Stay tune for further posts.Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-83018538687614681042018-09-04T19:03:00.000-07:002018-09-04T19:15:26.883-07:00Podcast with the Strawman and Book Reco<a href="https://soundcloud.com/user-398959793/the-strawman-investor-peter-phan">Podcast Link</a><br />
<br />
<br />
I think it might be remiss of me not to mention this book:<br />
<br />
<img alt="Value Investing: Tools and Techniques for Intelligent Investment by [Montier, James]" src="https://images-na.ssl-images-amazon.com/images/I/41hP%2BMD7PkL.jpg" /><br />
<br />
https://www.amazon.com/Value-Investing-Techniques-Intelligent-Investment-ebook/dp/B0030CHFBM/ref=tmm_kin_swatch_0?_encoding=UTF8&qid=&sr=<br />
<br />
Montier talks about the trinity of risks:<br />
<br />
1. Valuation Risk<br />
2. Earnings Risk<br />
3. Balance Sheet Risk<br />
<br />
Ultimately, the main idea is that risk is not a number, it is a notion/concept. Confusion sets in when we fail to separate price from value. I have harped on enough about this already. If it is not obvious now, it will never be.Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-41920230929087096712018-05-11T01:02:00.000-07:002018-05-11T01:02:01.419-07:00Friday MusingsWhat is the market? Is it a thing or a process? Or both- much like particle/wave duality in physics?<br />
<br />
This has something to do with market efficiency and edge.<br />
<br />
I will try to fill in more later. Just bookmarking random thoughts.Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-12703344222775382652018-05-04T01:03:00.000-07:002018-05-04T01:16:08.533-07:00Book Review: How Do You Know?<img alt="How Do You Know?: A Guide to Clear Thinking About Wall Street, Investing & Life by [Mayer, Christopher W.]" src="https://images-na.ssl-images-amazon.com/images/I/61Xj3fvVLNL.jpg" /><br />
<br />
<a href="https://www.amazon.com/How-Do-You-Know-Investing-ebook/dp/B07B1MYKS4/ref=mt_kindle?_encoding=UTF8&me=">Link to Amazon</a><br />
<br />
One of the four principles of value investing espoused by Li Lu (<a href="http://castlereaghequity.com.au/wp-content/uploads/2013/09/Li-Lu-The-Prospects-for-Value-Investing-in-China.pdf">link here</a>) is to understand and identify one's circle of competence. To do that, the first basic questions are likely to be What Do I Know? and How Do I Know?<br />
<br />
This is where Chris Mayer's book comes in handy.<br />
<br />
This is not a spoiler. The basic premise in Chris' book is that we don't really know much at all.<br />
<br />
Realising that we don't really know much at all (actually being convinced and internalising this reality, instead of paying lip service to it) could actually be the dawn of real wisdom.<br />
<br />
For me personally, this book has helped me reconcile conflicts and issues in respect of religions (short answer: degrees of belief, reasonably based) which is just a short hop away from issues in investments (short answer: degrees of conviction, reasonably based).<br />
<br />
The need for a margin of safety in investments is brought into stark relief when one considers the vexed issue of cause and effect. A background knowledge and reading of Nicholas Taleb's books would assist the reader here.<br />
<br />
I have previously caused some controversies in a<a href="https://www.blogger.com/blogger.g?blogID=1602177979060441474#editor/target=post;postID=8332774212289453152;onPublishedMenu=template;onClosedMenu=template;postNum=40;src=postname"> </a><a href="http://peterphan.blogspot.com.au/2016/09/current-reading.html">previous book review.</a> It is not my intention to cause offense again to honest and good work done by others. I do this in the spirit of intellectual inquiry for the betterment of all involved, and I hope my following comments will be interpreted as such.<br />
<br />
The pitfalls of data mining and survivorship bias are clearly demonstrated in Chris Mayer's book (Chapter 2) where he wrote about subsequent studies on the "great" companies covered by the authors of bestsellers In Search of Excellence (Peters and Waterman) and Good to Great (Collins and Porras).<br />
<br />
The efforts of the authors of Intelligent Fanatics should be read in conjunction with the above and also with <a href="https://blogs.scientificamerican.com/beautiful-minds/the-role-of-luck-in-life-success-is-far-greater-than-we-realized/">this excellent article from the Scientific American published recently in March 2018</a>. A very basic summary of some tentative scientific research shows that whilst talent is important, luck plays a large role in success.<br />
<br />
Enjoy and Prosper,<br />
Yours One-Legged<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-86059100129300557192018-04-22T20:27:00.002-07:002018-04-22T20:27:59.411-07:00Peter Kaufman's brilliantly instructive speech<a href="http://latticeworkinvesting.com/2018/04/06/peter-kaufman-on-the-multidisciplinary-approach-to-thinking/">Here is the link.</a><br />
<br />
If you really want to learn, it helps to stand on the shoulders of giants. Please enjoy the view.<br />
<br />
After you have finished, readers may want to have a go at formulating further models from Kaufman's three buckets, and if possible, a practical application for each model. You do not need to limit yourself to applications in the investing world.<br />
<br />
Enjoy and prosper<br />
Yours One Legged<br />
<br />Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-40048719411280336542018-04-05T22:23:00.002-07:002018-04-05T22:23:54.259-07:00A Possibly Useful Heuristic to Avoid Losing MoneyI watch with bemusement in recent days the stoush between Glaucus and Blue Sky Investments (BLA). The nosebleedingly high valuation which BLA managed to achieve before Glaucus came out firing could possibly be attributed to investors' thinking that BLA could be the next Magellan.<br />
<br />
Indeed, Glaucus has labelled BLA as the Brisbane-based wannabe KKR.<br />
<br />
I do not have a beef in this stoush, and frankly, I do not know enough to make a judgment.<br />
<br />
But I do adhere to a useful heuristic. I stay away from companies that tout themselves as the "Next XYZ". The next Microsoft, the next Google, the next CSL, the next Berkshire, the next Ebay, you have probably heard them all. Where are they now?<br />
<br />
Each successful company is a byproduct of its surrounding circumstances. The combination of circumstances that gave rise to a very successful company is always unique. And it is this exact uniqueness which accounts for its success. To replicate the company would required replication of both its internal composition AND its surrounding circumstances. How likely is that to happen?<br />
<br />
Furthermore, what does it tell you of the ethos, drive, or culture of a company which is merely content to be the next XYZ? Are you likely to find a hungry owner-operator with a vision beyond just mere filthy-lucre?<br />
<br />
Something to think about as our weekend approaches. Comments welcomed.<br />
<br />
Yours One Legged<br />
<br />
<br />Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com1tag:blogger.com,1999:blog-1602177979060441474.post-57351953836942686602018-03-25T21:17:00.003-07:002018-03-25T21:17:59.178-07:00Giverny Capital Annual Letter 2017<a href="http://www.givernycapital.com/en/doc/222/Giverny_Capital_-_Annual_Letter_2017_web_.pdf">Here is the link to Giverny Capital Annual Letter 2017.</a><br />
<br />
In my humble opinion, this is one of their best, if not THE BEST, letter to date.<br />
<br />
A tremendous performance from a truly gifted team.<br />
<br />
As imitation is the sincerest form of flattery, you will see much cloning in all of my correspondence and posts from henceforth, if not already.Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-66157848140424662592018-02-26T21:19:00.000-08:002018-02-27T19:05:33.784-08:00Excerpt from transcript of CNBC Buffett interview Feb 2018<div style="background-color: white; color: #424858; font-family: "Gotham Narrow SSm 4r", Arial; font-size: 16px; margin-bottom: 18px; padding: 0px; user-select: text;">
BECKY QUICK: I mean, you lay this out in the annual report, but a lot of investors are told – retail investors are told, that they should have a certain percent of their portfolio in bonds. Maybe they're told 60/40, maybe they're told 70/30 stocks to bonds. That's something that you should do and that's the safe way of doing. What are they missing?</div>
<div style="background-color: white; color: #424858; font-family: "Gotham Narrow SSm 4r", Arial; font-size: 16px; margin-bottom: 18px; padding: 0px; user-select: text;">
WARREN BUFFETT: Well, some people should not own stocks at all because they just get too upset with price fluctuations. If you're going to do dumb things because a stock goes down, you shouldn't own a stock at all. No, I mean—</div>
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BECKY QUICK: What are dumb things? Selling a stock because it goes down?</div>
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WARREN BUFFETT: Yeah, selling a stock because it goes down. I mean, you know, if you buy your house at $20,000 and somebody comes along the next day and says, "I'll pay you $15,000," you don't sell it because the quote's $15,000. You look at the house or whatever it may be. <u><b>But some people are not actually emotionally or psychologically fit to own stocks. But I think more of them would be if you get educated on what you're really buying, which is part of a business. And the longer you hold stocks, the less risky they become, whereas the longer the maturity of a bond, the more risky it becomes.</b></u></div>
<div style="background-color: white; color: #424858; font-family: "Gotham Narrow SSm 4r", Arial; font-size: 16px; margin-bottom: 18px; padding: 0px; user-select: text;">
BECKY QUICK: Do you feel like that's a message that is getting through to people? It's one that you repeat again and again. And I always feel like, I was watching a lot of the Olympics. And I felt like what they do in the Olympics is so easy. These guys sailing through the air and doing massive spins on the ice and turns. And then I read your annual letter and I think, "Oh, it's really easy to invest." And then I walk away and realize it's not that easy.</div>
<div style="background-color: white; color: #424858; font-family: "Gotham Narrow SSm 4r", Arial; font-size: 16px; margin-bottom: 18px; padding: 0px; user-select: text;">
WARREN BUFFETT: It's not easy psychologically for many people. But I've been teaching since I was 21. I taught my first class on investments, and I had a class last week with 11 schools, 220 students. <u><b>And some of them get it and some of them don't. Now, people would rather gamble. I mean, the idea that you can double your money in six months, that's just going to – it's why people go to the races, why they go to Vegas.</b></u> You know, whatever it may be. They even know the odds are against them. And they still do it. I mean, it's a strong instinct to want to get rich fast. And I don't know how to do it.</div>
Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-91918515115273746452018-02-26T19:03:00.002-08:002018-02-26T19:03:55.706-08:00UOS- yet another year (yawn)UOS full year results are out. The juggernaut's balance sheet looks like this. Are you getting bored yet?<br />
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</td>
<td style="border-left: none; border: solid black 1.0pt; mso-border-alt: solid black .5pt; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-themecolor: text1; mso-border-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
2H17</div>
</td>
<td style="border-left: none; border: solid black 1.0pt; mso-border-alt: solid black .5pt; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-themecolor: text1; mso-border-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
2H16</div>
</td>
<td style="border-left: none; border: solid black 1.0pt; mso-border-alt: solid black .5pt; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-themecolor: text1; mso-border-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 49.6pt;" valign="top" width="66">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
2H15</div>
</td>
<td style="border-left: none; border: solid black 1.0pt; mso-border-alt: solid black .5pt; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-themecolor: text1; mso-border-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.4pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
2H14</div>
</td>
<td style="border-left: none; border: solid black 1.0pt; mso-border-alt: solid black .5pt; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-themecolor: text1; mso-border-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.45pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
2H13</div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid black 1.0pt; mso-border-alt: solid black .5pt; mso-border-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 107.0pt;" valign="top" width="143">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
Cash</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$277m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$398m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 49.6pt;" valign="top" width="66">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$487m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.4pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$400m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.45pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$435m</div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid black 1.0pt; mso-border-alt: solid black .5pt; mso-border-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 107.0pt;" valign="top" width="143">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
Receivables</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$258m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$218m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 49.6pt;" valign="top" width="66">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$196m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.4pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$169m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.45pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$158m</div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid black 1.0pt; mso-border-alt: solid black .5pt; mso-border-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 107.0pt;" valign="top" width="143">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
Inventories </div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$577m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$385m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 49.6pt;" valign="top" width="66">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$395m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.4pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$358m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.45pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$310m</div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid black 1.0pt; mso-border-alt: solid black .5pt; mso-border-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 107.0pt;" valign="top" width="143">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
Land held for property development </div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$157m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$143m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 49.6pt;" valign="top" width="66">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$123m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.4pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$84m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.45pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$22m</div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid black 1.0pt; mso-border-alt: solid black .5pt; mso-border-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 107.0pt;" valign="top" width="143">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
Property plant and equipment </div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$99.4m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$94m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 49.6pt;" valign="top" width="66">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$57m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.4pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$62m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.45pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$28.2</div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid black 1.0pt; mso-border-alt: solid black .5pt; mso-border-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 107.0pt;" valign="top" width="143">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
Investment properties </div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$929m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$823m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 49.6pt;" valign="top" width="66">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$668m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.4pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$679m</div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.45pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
$649m</div>
</td>
</tr>
<tr>
<td style="border-top: none; border: solid black 1.0pt; mso-border-alt: solid black .5pt; mso-border-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 107.0pt;" valign="top" width="143">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<b>Total of Asset Items above<o:p></o:p></b></div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<b>$2297m<o:p></o:p></b></div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<b>$2061m<o:p></o:p></b></div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 49.6pt;" valign="top" width="66">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<b>$1926m<o:p></o:p></b></div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.4pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<b>$1752m<o:p></o:p></b></div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.45pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<b>$1602m<o:p></o:p></b></div>
</td>
</tr>
<tr style="height: 3.5pt; mso-yfti-irow: 8; mso-yfti-lastrow: yes;">
<td style="border-top: none; border: solid black 1.0pt; height: 3.5pt; mso-border-alt: solid black .5pt; mso-border-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 107.0pt;" valign="top" width="143">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: red;">Total liabilities <o:p></o:p></span></div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; height: 3.5pt; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: red;">$449m<o:p></o:p></span></div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; height: 3.5pt; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 47.65pt;" valign="top" width="64">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: red;">$460m<o:p></o:p></span></div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; height: 3.5pt; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 49.6pt;" valign="top" width="66">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: red;">$486m<o:p></o:p></span></div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; height: 3.5pt; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.4pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: red;">$367m<o:p></o:p></span></div>
</td>
<td style="border-bottom: solid black 1.0pt; border-left: none; border-right: solid black 1.0pt; border-top: none; height: 3.5pt; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt 0cm 5.4pt; width: 53.45pt;" valign="top" width="71">
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm;">
<span style="color: red;">$344m<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com3tag:blogger.com,1999:blog-1602177979060441474.post-90654798115248930702018-02-21T21:05:00.000-08:002018-02-21T23:24:14.216-08:00Picking the Dogs- Round 2I am quickly writing this post to illustrate the concept of inverting to solve problems.<br />
<br />
I think we can neatly use the concept of inverting when we are trying to pick the Dogs, or any investments, come to think of it.<br />
<br />
The core philosophy is that we are more likely to encounter inefficiencies and mispricings if we are willing to approach things differently from what the consensus is doing.<br />
<br />
Let's start with the Darlings- ALU, APX, PME and WTC. What is it about these stocks that got punters so excited? Quickly off the top of my head, here is a list:<br />
<br />
1. They are showing, and promising, lots of growth (more than 20% per annum).<br />
2. They are all technology and software related.<br />
3. They all appear to have a growing worldwide market with a long runway.<br />
4. They have fabulous gross margins.<br />
5. The above 4 allows them to weave a very simple but compelling narrative.<br />
<br />
If we are to pick Dogs, it would be logical to look for the complete opposite:<br />
<br />
1. They are shrinking, and not promising any growth whatsoever.<br />
2. They are in old school industries- manufacturing, fabrication, trading, printing, etc<br />
3. They have very limited markets.<br />
4. They have terrible margins.<br />
5. The story sounds horrible.<br />
<br />
So with those clues, I have picked a portfolio of 4 Dogs. They are the hairiest bunch you will ever see. But they do have some adorable characteristics:<br />
<br />
(a) No debt or no net debt, and excess cash plus other assets <br />
(b) Positive cashflow/profits<br />
(c) Priced at less than 3x to 5x multiples of cashflow/profits<br />
<br />
Yours One LeggedPeter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com1tag:blogger.com,1999:blog-1602177979060441474.post-74547392402734714432018-02-20T16:40:00.000-08:002018-02-20T16:41:44.292-08:00Dogs versus Darlings conclusion 4 years laterIt is time to draw a close to this amusing exercise, <a href="http://peterphan.blogspot.com.au/2014/03/dogs-versus-darlings.html">started here</a> with interim <a href="http://peterphan.blogspot.com.au/2016/09/dogs-versus-darlings-25-years-later.html">follow up here</a>.<br />
<br />
The result after nearly 4 years- the Dogs portfolio is up 40% (without accounting for dividends which would have added at least another 10-15%). The Darlings portfolio broke even (without accounting for dividends, probably adding 10%).<br />
<br />
The Dogs are COF, NWH, MND and LYL. In March 2014 and for a subsequent 2 years until the depth of the mining services crush in early 2016, these names were persona non grata in nearly every portfolio manager's book. Within my circle of friend's and colleagues, only one other investor shared my enthusiasm for these Dogs, and actually invested some money in them.<br />
<br />
To recap, the Darlings are OFX, XRO, IPP and REA. They collectively underperformed not just the Dogs, but also the All Ordinaries Accumulation Index. It was also quite fortunate for the Darlings portfolio that IPP was taken over by REA (and subsequently written off to zero), and that REA got included instead of the original candidate FLN. Furthermore, I would also argue that the Dogs performance was crimped because of COF's takeover. Subsequent to the takeover, COF's financial performance improved many fold, and I am quite confident that the share price would have appreciated significantly more than the 62% premium gained on the takeover.<br />
<br />
It is also worthy to note that the Dogs achieved this outperformance against the Darlings in a raging bull market, especially for technology stocks.<br />
<br />
Some may say that 4 years is too early to tell, and that the Darlings will prove their worth over the long haul, say 5 to 10 years. So let's just check periodically.<br />
<br />
The lesson here is that valuation matters and variant perception matters. Just speak to any investors who bought Microsoft and Cisco during the heights of the dotcom era in 2000.<br />
<br />
To hammer the lesson home, we have a roster of another 4 darlings- PME, ALU, APX, and WTC. I am preparing a roster of Dogs. Stay tuned.<br />
<br />
Yours One Legged<br />
<br />
<br />Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com3tag:blogger.com,1999:blog-1602177979060441474.post-4733828150828442502018-02-08T18:46:00.000-08:002018-02-08T18:46:16.105-08:00A Happy Belated New YearJust a quick note to my readers.<br />
<br />
Missus and myself have both been struggling with a cold caught overseas which pretty much put a damper on what should be a restful and peaceful break.<br />
<br />
We have both recovered, but I am now right smack at the start of reporting season and also in the middle of an intake for Castlereagh Equity. The increasingly wobbly financial markets make for interesting times.<br />
<br />
To my readers, thank you for your patronage over the years. I will try my best to continue with useful and insightful posts.<br />
<br />
To my investor partners, thank you for your continued trust and confidence in me.<br />
<br />
To my fellow journeymen (or journeypersons) and friends, many thanks for your companionship and wise counsel through the good times and also the bad.<br />
<br />
And to my dear missus, thank you for so many years of patience, care and love. I look forward to many many more.<br />
<br />
Yours One Legged<br />
<br />
<br />Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-42601910532564532682017-11-09T20:18:00.000-08:002017-11-09T20:22:30.755-08:00Xero and Intuit follow upXero recently published its half year report, so it is time to update our figures. The following table summarises the salient metrics:<br />
<br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid black .5pt; mso-border-themecolor: text1; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;"><tbody>
<tr><td style="border: 1pt solid black; padding: 0cm 5.4pt; width: 92.35pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
<br /></div>
</td><td style="border: 1pt solid black; padding: 0cm 5.4pt; width: 92.4pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
2014</div>
</td><td style="border: 1pt solid black; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
2015</div>
</td><td style="border: 1pt solid black; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
2016</div>
</td><td style="border: 1pt solid black; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
1H2017</div>
</td></tr>
<tr><td style="border: 1pt solid black; padding: 0cm 5.4pt; width: 92.35pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
Revenue</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.4pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
143m</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
207m</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
295m</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
187m</div>
</td></tr>
<tr><td style="border: 1pt solid black; padding: 0cm 5.4pt; width: 92.35pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
COGS</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.4pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
30%</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
24%</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
23%</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
20%</div>
</td></tr>
<tr><td style="border: 1pt solid black; padding: 0cm 5.4pt; width: 92.35pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
R & D</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.4pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
50%</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
48%</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
41%</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
49%</div>
</td></tr>
<tr><td style="border: 1pt solid black; padding: 0cm 5.4pt; width: 92.35pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
General</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.4pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
20%</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
15%</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
13%</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
11%</div>
</td></tr>
<tr><td style="border: 1pt solid black; padding: 0cm 5.4pt; width: 92.35pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
Marketing</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.4pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
75%</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
72%</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
56%</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
38%</div>
</td></tr>
<tr><td style="border: 1pt solid black; padding: 0cm 5.4pt; width: 92.35pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
Total</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.4pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
175%</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
159%</div>
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133%</div>
</td><td style="border-bottom: 1pt solid black; border-left: none; border-right: 1pt solid black; border-top: none; padding: 0cm 5.4pt; width: 92.45pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
118%</div>
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<o:p>Once again, the figures are headed in the right direction. Although the company announced operating cash flow positive, adding in the impact of capitalised R & D still resulted in cash burn of $34m, leaving roughly $84m left in the bank, implying a steady runrate of just over 1 year. </o:p><br />
<o:p><br /></o:p><o:p>As a matter of comparison, let's look at Intuit's 2017 metrics:</o:p><br />
<o:p><br /></o:p><o:p>Revenue USD$5.18 billion up 10% from 2016 (note: XRO growth is much higher)</o:p><br />
<o:p>COGS 15.6% of revenue</o:p><br />
<o:p>R & D 19% of revenue</o:p><br />
<o:p>General 10.7% of revenue</o:p><br />
<o:p>Marketing 27.4% of revenue</o:p><br />
<o:p>Total 72.7% of revenue (versus 74% for 2016)</o:p><br />
<o:p>Operating cashflow= $1.6 billion</o:p><br />
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<o:p>The current market cap for XRO is roughly NZ$4.6 billion (a rise of nearly 45% since my last update). Still too rich for my taste. As a matter of comparison, Intuit's market cap is currently USD$39 billion.</o:p></div>
Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-21705844498506845242017-11-07T17:09:00.000-08:002017-11-07T17:09:20.754-08:00Pip Watching<pre wrap=""><span style="font-family: Arial, Helvetica, sans-serif;">Imagine a hypothetical portfolio. This portfolio has a very healthy performance of 15% pa. The volatility/variance of this portfolio is roughly 10% per annum. Despite this, the probability distribution of price moves for any short time periods between one second to one day is just slightly better than 50-50. If an investor is assiduously following the price moves of this portfolio more than once per day, the statistical expectation is not much better than watching the outcome of a flipped coin.</span></pre>
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</span></pre>
<pre wrap=""><span style="font-family: Arial, Helvetica, sans-serif;">Various studies have shown that the emotional impact of a loss is nearly 2.5 times the impact of a gain. Accordingly, the consequence of pip watching is net emotional deficit. And the absolute net impact gets bigger with increased frequency of pip watching, and also increased number of portfolio positions.</span></pre>
<pre wrap=""><span style="font-family: Arial, Helvetica, sans-serif;">
</span></pre>
<pre wrap=""><span style="font-family: Arial, Helvetica, sans-serif;">Bear in mind that 15% pa with 10% variance over a long period of time is a great performing portfolio. This means that a lesser performing portfolio will not be any better for the constant price checker. It may in fact be far worse. Further, there is also a feedback loop in place. The net emotional deficit may feed through into deteriorating performance, which will increase the emotional deficit, leading to a vicious cycle. At the same time, the random nature of punishment and rewards in pip-watching gives rise to addiction similar to the process in gambling.
The physical consequences of chronic stress from pip watching include high blood pressure, diabetes, hormonal imbalances, possibly brain damage, eye problems and a whole other variety of ailments. An investor that keeps at this bad habit for long periods of time may actually be accumulating money at the expense of health. Wealth, happiness and well-being arise from a well-lived life, not just the bank balance at the end.</span></pre>
<pre wrap=""><span style="font-family: Arial, Helvetica, sans-serif;">
</span></pre>
<pre wrap=""><span style="font-family: Arial, Helvetica, sans-serif;">In other words, pip watching can severely affect your health, and also your wealth. </span></pre>
<pre wrap=""><span style="font-family: Arial, Helvetica, sans-serif;">
</span></pre>
<pre wrap=""><span style="font-family: Arial, Helvetica, sans-serif;">Don't do it.</span></pre>
<pre wrap=""><span style="font-family: Arial, Helvetica, sans-serif;">
</span></pre>
<pre wrap=""><span style="font-family: Arial, Helvetica, sans-serif;">Stay healthy, enjoy and prosper,</span></pre>
<pre wrap=""><span style="font-family: Arial, Helvetica, sans-serif;">Yours One Legged</span></pre>
Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-3569559511302981512017-10-18T23:10:00.001-07:002017-10-18T23:10:26.880-07:00Howard Mark's recent G & D interview quotesI enjoy reading the Graham-Doddsville newsletter.<div>
<br /></div>
<div>
<a href="https://www8.gsb.columbia.edu/valueinvesting/sites/valueinvesting/files/Graham-Doddsville-Issue-31_0.pdf">Here is the latest one</a>.</div>
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<div>
Some pertinent quotes, relating to the issue of indexing and quantitative/AI factor.</div>
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Howard
Marks: </div>
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“If people
take their money out of active management, then active managers would fire all
their analysts, and then the market would not stay efficient. Then the
necessary condition is satisfied for active to work. The point is, I don't
think this move is permanent, I think it's rotational.”</div>
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“Because
every dollar that goes into a truly passive fund is invested on autopilot, the
fund must buy the stocks that satisfy its criteria, and that’s without regard
to value. That suggests to me that prices can go farther in diverging from
value before they get corrected. Think about what would happen if 95% of the
money went into index ETFs or index funds. Who would be setting prices? <b><u>There’s something called price
discovery, and it’s done by thoughtful buyers and sellers. </u></b>The price of
a security in the marketplace is set by buyers and sellers coming together, and
seeing if they can find a place to transact where the buyer thinks it has good
upside, and the seller thinks it doesn’t. Who provides that function if all the
buying are on autopilot? People put their money in index funds, with the
presumption that they’re minimizing error, but how much of your money do you
want to have managed in a fund where nobody’s thinking about the price of the
stocks or the weightings within the portfolio? The thing about investing is
that the efficient market hypothesis says that price equals value. Active
management is about the assumption that price sometimes deviates from value,
finding those deviations, and then taking advantage of them. It seems to me
that the fewer the people who are looking at value, the higher the likelihood
that price can diverge from value. But that’s just a hypothesis.”</div>
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“None of this
stuff is easy. The greatest quote in my book is from Charlie Munger, who said,
“None of this is meant to be easy, and anybody who thinks it’s easy is stupid.”
All this stuff is really complex. It’s easy to talk about, but it’s hard to
implement. How do you tell the ones who are good but unlucky, from the ones
that are bad? It’s not easy. It takes judgment. That’s why I believe that this
whole thing can never be completely computerized, because I think exceptional
investment success requires judgment, and I don’t know if AI can be taught to
make those judgments.”</div>
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Dear readers, any thoughts?</div>
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Yours One-Legged</div>
</div>
Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com4tag:blogger.com,1999:blog-1602177979060441474.post-34294474710052661852017-09-14T18:45:00.002-07:002017-09-14T18:45:39.391-07:00Book Review: Big Money Thinks Small<img alt="Big Money Thinks Small: Biases, Blind Spots, and Smarter Investing (Columbia Business School Publishing) by [Tillinghast, Joel]" src="https://images-na.ssl-images-amazon.com/images/I/510GfjzvvKL.jpg" /><br />
<br />
https://www.amazon.com/Big-Money-Thinks-Small-Publishing-ebook/dp/B0743JNFBZ/ref=tmm_kin_swatch_0?_encoding=UTF8&qid=&sr=<br />
<br />
An interesting read. In terms of concepts and philosophies, the reader will not find anything new that was not encountered before if one has been constantly reading up on the topic of investment.<br />
<br />
The author ties together concepts of value investing augmented with experiences and practical applications of financial history and behavioural psychology. The main takeaway for me is his account of the travails of Dendreon and the dangers of investing in a "story." To summarise, Dendreon was a biotech which developed a treatment for cancer. The main bull story for Dendreon was that once FDA approval is obtained, earnings will rocket to the sky. The ending was that Dendreon did actually obtain FDA approval, and its share price went up tenfold, however sales were disappointing and the company eventually declared bankruptcy!<br />
<br />
There are several stocks on the ASX in which investors are clearly enamoured with the "story", the most vivid example being Mesoblast.<br />
<br />
The author also addressed the issues inherent in indexing, factor investing and macro investing.<br />
<br />
The only gripe I have with the book is that it could be better organised. The way it was written looks more like a stream of thought cobbled together hastily without any overarching framework.<br />
<br />
A reminder that there is a library of my reading <a href="http://castlereaghequity.com.au/investment-library/">here</a>.<br />
<br />
Enjoy and prosper<br />
Yours One-Legged<br />
<br />Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-6412751620703401262017-07-13T00:47:00.000-07:002017-07-13T00:47:01.126-07:00Book Review: Priceless<img src="data:image/webp;base64,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" /><br />
<br />
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: xx-small;">https://www.amazon.com/Priceless-Myth-Fair-Value-Advantage/dp/0809078813</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: xx-small;"><br /></span>
<br />
<pre wrap=""><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: xx-small;">This is a very entertaining and easy read. Not much prior background knowledge required, but you will gain a lot more insights if you do.</span></pre>
<pre wrap=""><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: xx-small;">
</span></pre>
<pre wrap=""><span style="font-family: arial, helvetica, sans-serif;">Specifically relevant to investing, you will gain an insight as to why price trends occur in all markets, how and why market bubbles form, and how/why this has and will repeat themselves.</span></pre>
<pre wrap=""><span style="font-family: arial, helvetica, sans-serif;">
</span></pre>
<pre wrap=""><span style="font-family: arial, helvetica, sans-serif;">The reversal preference experiments show clearly why many investors (including myself) hang on to losses and cut their winners too early.</span></pre>
<pre wrap=""><span style="font-family: arial, helvetica, sans-serif;">
</span></pre>
<pre wrap=""><span style="font-family: arial, helvetica, sans-serif;">The anchoring and adjustment experiments will be known to many of us. However, I think many will miss the essential lesson- being that anchoring and adjustment is an artifact of guessing. With investing, there will always be a degree of guessing, so the challenge is to be able to deal with effects of anchoring and adjustment.</span></pre>
<pre wrap=""><span style="font-family: arial, helvetica, sans-serif;">
</span></pre>
<pre wrap=""><span style="font-family: arial, helvetica, sans-serif;">Enjoy and Prosper</span></pre>
<pre wrap=""><span style="font-family: arial, helvetica, sans-serif;">Yours One-Legged</span></pre>
<pre wrap=""><span style="font-family: arial, helvetica, sans-serif;">
</span></pre>
<pre wrap=""><span style="font-family: arial, helvetica, sans-serif;">
</span></pre>
<pre wrap=""><span style="font-family: arial, helvetica, sans-serif;">
</span></pre>
Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-22222203913478986322017-05-16T19:48:00.006-07:002017-05-17T22:36:53.165-07:00Musings on Passive Investing via Index Funds<div class="MsoNormal">
<b><u>The Basic
Proposition<o:p></o:p></u></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As per Buffett and Munger, Indexing makes sense if you do not know what you are doing.
In aggregate, active managers cannot achieve a result better than the index. In
fact, given the extreme skewness of the stockmarket, it is virtually guaranteed
that over a long period of time, a majority of active managers will never do
better than the index, especially after deduction of significant fees. Given
that all long term records of stockmarkets show an upward trend, it makes sense
to be invested in the whole market rather than betting on its discrete elements,
especially if the attendant costs/fees involved are much lower.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u>The Problems<o:p></o:p></u></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The first problem with indexing is that the market is
self-correcting, and too much of a good thing becomes a crowded trade. Indexing
becomes a problem when too much money is chasing after it. If this happens,
prices are no longer tethered to values, and you will have a situation where
asset prices rise purely because they are rising and vice versa. This means
that asset prices no longer reflect actual business performance, which is
unsustainable. Conceptually, index funds are intended to passively track the
index. However, if too much funds are involved, the fund inflows by themselves
will have a significant effect on the index levels. Index funds will no longer
be passively tracking the index, rather, they would be a major factor affecting
the index.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The second problem with indexing is the wide sweeping
assumption that everything tends to average. An often used marketing angle of
index funds is that a majority of fund managers cannot beat the market. This is true, but it fails to address the
main issue of how to select a fund manager who is capable of beating the
market. A system with average values will often have wide non-random
variability between its system participants. There are persistent winners, and
there are persistent losers. Try to remember the kid that always comes first in
class over your entire experience of primary and secondary school. And don’t
forget the one that comes consistently last. We ask ourselves why? In every
field of endeavour, there is a pecking order which is inviolate, and the top
and bottom can often be identified very early in advance. Proponents of
indexing sweep this away under the carpet.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The third problem with indexing lies with its basic
proposition that equity markets inevitably rise over time, ostensibly at a
steady rate of 7% per annum. This is true over a truly long time span, say 60-100
years. The reality is that market returns in discrete periods fluctuates
greatly. The following are US Equity returns during the Post-War period:</div>
<div class="MsoNormal" style="line-height: 13.0pt; margin-bottom: .0001pt; margin-bottom: 0cm; mso-line-height-rule: exactly;">
1946-2012 6.4%</div>
<div class="MsoNormal" style="line-height: 13.0pt; margin-bottom: .0001pt; margin-bottom: 0cm; mso-line-height-rule: exactly;">
1946-1965 10%</div>
<div class="MsoNormal" style="line-height: 13.0pt; margin-bottom: .0001pt; margin-bottom: 0cm; mso-line-height-rule: exactly;">
1966-1981 -0.4%</div>
<div class="MsoNormal" style="line-height: 13.0pt; margin-bottom: .0001pt; margin-bottom: 0cm; mso-line-height-rule: exactly;">
1982-1999 13.6%</div>
<div class="MsoNormal" style="line-height: 13.0pt; margin-bottom: .0001pt; margin-bottom: 0cm; mso-line-height-rule: exactly;">
2000-2012 -0.1%</div>
<div class="MsoNormal" style="line-height: 13.0pt; margin-bottom: .0001pt; margin-bottom: 0cm; mso-line-height-rule: exactly;">
<br /></div>
<div class="MsoNormal">
An investor invested in index funds in the year 2000 would
have had made a loss over the next 12 years. The critical message- unless your
investment horizon is truly long term over at least 50 years, there is no
guarantee that index funds will do well.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u>The Consequence<o:p></o:p></u></b></div>
<div class="MsoNormal">
<br />
Human behaviour and the power of incentives will ensure that
so long as investors want salt, they will be sold salt. It is not in the best
interest of promoters and managers to sell a single index fund where investors
are encouraged to stay invested indefinitely with no churn. If there is no
activity and no churn, how are they going to earn their bread? Marketers know
the basic behavioural problems of average investors and they will act
accordingly, leading to a proliferation of different ETFs. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Investors want choices because each of them believes they
are above average investors able to make superior choices than the average
punter- hence a proliferation of ETFs will be created to satisfy this demand.
If enough people want an ethical ETF which promotes social notions such as
gender equality or white supremacy, then the market will surely create this ETF
to satisfy demands. Given that the average investor is also unable to sit still and clamor action, there will be plenty of different ETFs to satisfy the need for action.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Investors are also greedy, so leveraged ETFs are created to
turbo-charge returns. After all, over the long term, the sharemarket only ever
rises. Investors are also envious
creatures. They will not be happy with a steady 7% per annum with a vanilla
index fund when their neighbours are raking in 15% from the latest triple
leveraged ETFs. Leveraged ETFs will then be in hot demand. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As investors race up the risk curves, the market will
continue to create products to satisfy this demand. Pretty soon, derivatives of
ETFs will be created, and then further derivatives. They will all be marketed
with great endorsement and validation- virtually assured returns with very
little risks involved- whilst the promoters rake in fees and bonuses.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Does this sound familiar to you? How would all these end?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u>The Solution?</u></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In the tradition of Fermat, I am nearly finished with my
suggested solution, but [insert suitable excuse].</div>
<div class="MsoNormal">
<br /></div>
<br />
<div class="MsoNormal">
Stay tuned. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Yours One-Legged</div>
Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com2tag:blogger.com,1999:blog-1602177979060441474.post-56100257604917854062017-05-10T23:45:00.000-07:002017-05-10T23:45:50.087-07:00Xero Follow-UpXero published its full year report today, so it is time to update our figures. The following table summarises the salient metrics:<br />
<br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid black .5pt; mso-border-themecolor: text1; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;"><tbody>
<tr><td style="border: 1pt solid black; padding: 0cm 5.4pt; width: 92.35pt;" valign="top" width="123"><div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
<br /></div>
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2014</div>
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2015</div>
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2016</div>
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2017F</div>
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Revenue</div>
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143m</div>
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207m</div>
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295m</div>
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410m</div>
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COGS</div>
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30%</div>
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24%</div>
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23%</div>
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<br /></div>
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R & D</div>
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50%</div>
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48%</div>
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41%</div>
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<br /></div>
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General</div>
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20%</div>
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15%</div>
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13%</div>
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<br /></div>
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Marketing</div>
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75%</div>
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72%</div>
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56%</div>
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<br /></div>
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Total</div>
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175%</div>
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159%</div>
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133%</div>
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<br /></div>
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<br />
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<br /></div>
<div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
<o:p>Once again, the figures are headed in the right direction. Cash burn is still $71m, with $114m left in the bank, implying a steady runrate of 1.5 years. </o:p><br />
<o:p><br /></o:p>
<o:p>As a matter of comparison, let's look at Intuit's 2016 metrics:</o:p><br />
<o:p><br /></o:p>
<o:p>Revenue USD$4.7billion up 12% from 2015 (note: XRO growth is 44%)</o:p><br />
<o:p>COGS 16% of revenue</o:p><br />
<o:p>R & D 19% of revenue</o:p><br />
<o:p>General 11% of revenue</o:p><br />
<o:p>Marketing 28% of revenue</o:p><br />
<o:p>Total 74% of revenue</o:p><br />
<o:p><br /></o:p></div>
<div class="MsoNormal" style="line-height: 12pt; margin-bottom: 0cm;">
<o:p>The current market cap for XRO is roughly NZ$3.2 billion. Still too rich for my taste. As a matter of comparison, Intuit's market cap is currently USD$33 billion, trading on a historical PE of 33.</o:p></div>
Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-25977753307689832082017-05-09T00:27:00.004-07:002017-05-09T00:27:58.619-07:00Stock Picking and RealityI am currently gathering my thoughts on the current hot issue of passive investing via index funds. I have written quite a lengthy article which is not quite ready for publication yet.<br />
<br />
This short blog post will appear to be another nail in the coffin for active investing.<br />
<br />
It is not intended to be.<br />
<br />
The main purpose of this post is to point out that the truth, as usual, is rather more nuanced than the black and white propositions presented daily in the press.<br />
<br />
If you are a stock-picker or aspiring to be one, then it is imperative to understand the monstrous task required. Stock returns over the long term are extremely skewed. Crazily so. Studies of the US market appear to indicate that only 4% of stocks accounted for the entire market gain over the period starting from 1926 to 2015.<br />
<br />
The relevant blog post with the article link is <a href="http://www.crossingwallstreet.com/archives/2017/04/the-skewness-of-stock-returns.html">here</a>.<br />
<br />
These means that a randomly generated portfolio (the monkey dart theory) will fail to beat the market 99% of the time. It is now also easier to understand why active management, in aggregate, cannot beat the market. In fact, it is a logical inference that when the active management industry, in aggregate, gets larger and larger, it is doomed to fail in its collective quest to beat the market. That is likely to hold true even if we disregard fees.<br />
<br />
It does make the case for passive indexing even stronger.<br />
<br />
But that is not the entire story. Stay tuned.<br />
<br />
Yours One-Legged<br />
<br />
p/s astute readers will get a hint from the above. Just as nature abhors a vacuum, the market appears to abhor a crowded trade.Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0tag:blogger.com,1999:blog-1602177979060441474.post-25473328143646083812017-05-02T20:38:00.001-07:002017-05-02T20:38:13.447-07:00Book Review- Where Good Ideas Come From<img src="https://images-na.ssl-images-amazon.com/images/I/41OyN%2BFRajL._SX331_BO1,204,203,200_.jpg" /><br />
<br />
My brief thoughts on reading this book:<br />
<br />
New ideas arise from a synthesis of ideas, usually from unrelated disciplines. They do not just come out from a vacuum.<br />
<div>
<br /></div>
<div>
Connection of ideas within a body of ideas require a reasonably large body of ideas to start with, and the body of ideas must continually expand, hence requiring continuous learning.</div>
<div>
<br /></div>
<div>
But since the existing store of human knowledge is so vast, we. need to pick our spots. Distant ideas are more difficult to connect than adjacent ideas. Looking back, most if not all of my profitable ideas arose because of a synthesis of prior work. </div>
<div>
<br /></div>
<div>
Relates back to circle of competence.</div>
Peter Phanhttp://www.blogger.com/profile/07961974357451001679noreply@blogger.com0