Ipreports
The Economist yesterday ran a story on the frothiness of the Brazilian markets, especially for Private Equity and Hedge funds. It’s great that the country has seen a wave of IPOs and that more sectors of the economy are now represented in the exchanges. Increasing Private Equity investments and a healthy market providing an exit strategy could mean that, over time, more interesting companies and business models come to the market. But as we’ve argued in our latest report, an excerpt of which we include in this post, some caution is due.
In Part 1 of the Sand Castles, Concrete Walls text we used the “Maginot Line”, the French fortification system bypassed by the German army in the Second World War, to discuss three important questions regarding the decision taking process for investments: the identification of sustainable competitive advantages (“economic moat”), the sense of security embedded in our convictions and risk perception (our “behavioral Maginot Lines”), and finally, the partial antidote for our ignorance – the requirement of a “margin of safety” (quantitative and qualitative). In this Part 2 we reflect on the concept of an “economic moat”, the metaphor immortalized by Buffett to designate a “sustainable competitive advantage” – one of the sacred cows both for the strategy/competition theories and for classical methods for valuing companies.
In our Q4 2010 report, out later today, we will publish the second part of the “Sand Castles, Concrete Walls” text we began publishing in the Q3’10 report. Today we’re publishing part 1 on Buysiders.com. In Part 1 we revisit the idea of an “economic moat”, using as a backdrop the Maginot Line – France’s ingenious fortification system which, bypassed by the German army at the beginning of the Second World War, became a synonym for a “white elephant”. More important than reflecting on subjects that interest us as investors is to make use of the Maginot metaphor to rethink the sense of security that guides our actions as shareholders or executives, especially in times of calm.
In our Q2 2010 report, we said that there was growing evidence that “the governance structure in which we live is defective.” After a description of what was wrong, we said: “There is a clue, a glimpse of something that may bring changes in this scenario when one studies initiatives such as WikiLeaks and Propublica, which are very specific examples of how technology can and will enable change by introducing transparency.” We wonder how long before such initiatives find a vehicle in Brazil…
Our Q3 report is almost ready to go, and in it we will publish the first part of a text called “Castles of Sand, Walls of Concrete” – we’ve been working with this text’s theme for a while. We were positively surprised by James Surowiecki in the New Yorker magazine (cover date October 18th 2010) with an article called “The Next Level” that has a lot to do with what we wrote.
The text inside did not appear in our Q2 2010 report in English, but we’ve brought it to Buysiders. It’s about “visibility” in the markets: do investors really alternate between periods of “excellent” and “very poor” visibility or is that just an illusion? We choose the latter. As Warren Buffett says, “Forecasts usually tell us more of the forecaster than of the future”.
Read more about IP report excerpts, vol.7, part 1: on visibility
In this Q1 2010 report, we describe how the last few months were a period of much study and few operations. We have found ourselves in a phase with few new situations in which we could have great convictions. We also announced the “Prêmio Investidor Profissional de Arte – PIPA” to our clients.
We refer you to part 1 of this series for an introduction to our post on IP’s Q4 2009 report. In this part 2 we highlight excerpts from both funds’ “Perspectives” sections. It’s no accident that they address the same themes and mention the same measures we’re taking.
Read more about IP report excerpts, vol. 5: Yellowstone? – part 2
In the latest of post of our series on IP’s reports, we discussed the current investment environment in the Q4 2009 letter. We liken the current optimism and false sense of security to the sensation some visitors to the Yellowstone National Park feel: they’re awed by the place and how beautiful it looks, but forget or don’t know that a large area of the park is in the very crater of one of the world’s largest super-volcanoes. In this part 1 we highlight excerpts from the “Introduction” section of the report.
Read more about IP report excerpts, vol. 5: Yellowstone? – part 1
Motivated by the recent LBO of IMS Health by TPG (the private equity group) and Canada Pension Plan, here’s an excerpt from our Q3 2009 report in which we discussed the company. We had been looking at it at least since 2007, when we started to look at the healthcare industry globally. Right after our text we link to other interesting articles on the deal.
