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2 Sep 2021 - Big Tech's success incites a backlash
Big Tech's success incites a backlash Michael Collins, Magellan Asset Management Limited August 2021 |
Theodore Roosevelt, the 26th US president who was in office from 1901 to 1909, is ranked among the greats.[1] Among achievements, Roosevelt won the Nobel Prize in 1906 for efforts to resolve the Russo-Japanese war and ensured the Panama Canal was built under US control. The Republican protected natural wonders such as the Grand Canyon, welcomed Oklahoma as the 46th state, founded the Department of Commerce and Labor (since split) to oversee the economy and, by expanding the navy, hastened the US's rise as a global power. And he was a 'trust buster'. Roosevelt was president of a feeble state during a 'Gilded Age' when "the power of big business alarmed public opinion because its leaders behaved as if they were above the law", according to one biographer.[2] On assuming office in September 1901 after his predecessor was assassinated, Roosevelt challenged the business czars who sat atop trust structures. In 1902, he used the Sherman Antitrust Act of 1890 to prevent J.P. Morgan-controlled Northern Securities from establishing a western railway monopoly, the first time any president confronted a big company.[3] Northern was soon dissolved after a court battle. Moves followed against other 'bad trusts' such as the Beef Trust, the Sugar Trust and the giant Standard Oil under the control of John D Rockefeller. Such steps are recalled today as people ponder the emergence of powerful technology companies; foremost, Alphabet (owner of Google), Amazon, Apple and Facebook. Many people want to curb the influence of these billion-plus-user-strong 'net states'.[4] The critics said the platforms enjoy monopoly powers bestowed by the 'network effect' - when each additional user makes something more valuable for other users. They say these companies were allowed to buy, imitate and crush threats. They claim the platforms are conflicted because they act as gatekeeper and competitor to rivals such as other online sellers. The overarching complaint is the internet giants have too much influence in a Gilded Age they created. They want Big Tech's power reduced, even if that means breaking up these titans. Amid these calls, US President Joe Biden's administration is flexing against Big Tech. House Democrats have introduced six antitrust bills[5] including the Republican-supported Ending Platform Monopolies Act that seeks to ban takeovers and limit conflicts of interest.[6] Biden has appointed tech foes to head regulatory bodies and advise him. Biden named as his special assistant for competition policy Tim Wu, a law professor who has called for the dismantling of Facebook and who blames monopoly power for the rise of fascism in the 1930s.[7] He chose Jonathan Kanter, designer of the EU's antitrust case against Google, to run the Justice Department's Antitrust Division. He selected Lina Khan, an academic famous for highlighting Amazon's conflicts of interest, to head competition watchdog, the Federal Trade Commission. Already under Khan, the FTC has rescinded a 2015 policy that limited its enforcement abilities[8] and approved procedural changes to capitalise on a 1975 statute that lets it write tougher regulations.[9] Another sign of Biden's resolve is a far-reaching executive order on July 9 to promote competition across the US economy.[10] The antitrust push comes after decades when the antitrust focus was based on the tangible goal of protecting consumers. This meant preventing price gouging. Free services such as Facebook and Google are insulated from the charge of rigging prices; so too is Amazon that is celebrated for lowering prices. For Biden's efforts to succeed Roosevelt-style, regulators need to reframe the antitrust focus to the intangible goal it had in Roosevelt's day. Back then, regulators sought to curb the political and economic power flowing from market dominance, even though economies of scale were allowing these titans to reduce prices for consumers. Even without much of a pivot, Biden's actions will likely help consumers. The 'right to repair' is being enforced, which means tech companies will need to make models that can be repaired and supply relevant parts. Amazon in July gave complainants the right to take court action against the company, a move that exposes the e-retailer to liability.[11] Regulators will impose fines on platforms for even minor competition breaches and target conflicts of interest. Amazon could be forced to shed AmazonBasics that sells Amazon-branded goods and might be forced to allow rival sellers to offer wares at lower prices on other sites. Ditto for Google when promoting search results that benefit the Alphabet group. Apple faces scrutiny about pre-installed apps for Apple services on iPhones. Regulators will take a harsher view of takeovers, especially by Big Tech. Government antitrust action in June that prompted Aon to abandon its US$30 billion takeover of rival insurer Willis Towers Watson showed the higher hurdle for takeovers.[12] But even if antitrust swivels to focus on intangible threats to society, much won't change. Breaking up companies is hard because liberal democracies enshrine property rights by limiting government power. Big Tech will thus use the courts as a shield against the antitrust push. These companies have the resources to prolong and win court action. Legal moves by Amazon and Facebook in June to force Khan to recuse herself from FTC decisions revealed Tech's resolve to protect gains.[13] The FTC's failure in a federal court in June to prove Facebook is a monopoly shows how hard the legal battle will be to win. That follows a unanimous ruling of the Supreme Court in April that stripped the FTC of its long-used power to seek restitution from businesses guilty of abusive practices.[14] Away from the legal system, a polarised Congress won't toughen antitrust laws too much when unravelling the network effect would result in outsized damage to popular tech services offered free by companies. Big Tech might be crimped here and there but the internet giants will remain as dominant as ever; perhaps even too powerful for society's good. To be sure, the internet giants reject accusations they are 'robber barons', claiming they have succeeded through ingenuity and effort, not by rigging markets. The antitrust pursuit precedes Biden by years - the FTC action that seeks to reverse Facebook's purchases of Instagram and WhatsApp, for instance, began under the administration of Donald Trump.[15] The issue of monopoly or oligopoly power extends beyond tech.[16] Even the internet giants deserve protection from capricious politicians - Trump's attempt to block AT&T's takeover of Time Warner in 2018 was seen as politically motivated.[17] Truth be told, Western politicians and regulators are flummoxed on how to regulate such complex creations as platforms. While that could result in poorly designed regulation, the more likely result is that authorities refrain from mounting an aggressive tilt against the internet titans that would be hard to beat in court anyway. The upshot is that the tech superstars are likely to retain, if not extend, their dominance in coming years. Their critics will keep longing for another Roosevelt for a while yet. Unwinding the Chicago twist John Sherman (1823 to 1900) was a Republican senator from Ohio who gave his name to the act that is regarded as the foundation of attempts to regulate competition. At its core, the act, which Sherman described as "a bill of rights, a charter of liberty"[18] made it illegal for competitors to collude on prices, to divide markets, and outlawed monopolies if they relied on unfair competition.[19] The act's significance was to consider the interests of workers, smaller competitors and wider society over the long term. US Congress soon passed two more laws to strengthen the Sherman Act. As trusts were dismantled and companies formed, the Clayton Act of 1914 was designed to block mergers and takeovers that would have cemented control over prices. The other was the Federal Trade Commission Act of 1914 that created an agency to scrutinise businesses. The intent of these three acts and subsequent amendments[20] spread to US states and other countries such that it forms the basis of government control over business around the world today. In the US, the efforts to police competition peaked in the 1950s and 1960s. After World War II, Congress and the Supreme Court introduced and enforced antitrust measures that protected smaller businesses against larger ones by cracking down on predatory pricing, looked askance at 'vertical integration' and consistently considered social and political issues, not just economic ones. The focus, however, changed from the 1970s when University of Chicago professors (dubbed the Chicago School) argued that antitrust laws should focus only on what mattered to consumers; namely, prices, output and efficiency. The Chicago School argued that firms survived only if they pleased consumers so there was no need for the government to protect firms from more dominant competitors or take a wider view of their influence in society. The Chicago view was encapsulated in the paradox named after Yale professor Robert Bork who said in his book of 1978 The antitrust paradox that efforts to protect consumers only lead to higher prices by protecting inefficient firms.[21] The Bork paradox, which essentially said government regulation of competition did more harm than good, took hold and antitrust enforcement largely lapsed during the 1980s and has been patchy since.[22] As the rise of the digital platforms revived interest in antitrust efforts, Amazon became the prime antitrust focus because a company that started selling books online in 1995 now has interests that extend beyond ecommerce to advertising, artificial intelligence assistants, book publishing, bookstores, cloud services, delivery, electronics, express post, entertainment, gaming, groceries, logistics, money lending, music, publishing, streaming, videos and warehousing. This issue is not just Amazon's power within an industry but the company's influence across the economy and society. Khan, when at Yale University in 2017, wrote perhaps the most influential paper that has argued that today's narrow approach to antitrust allows Amazon's unfettered rise to the detriment of wider consumer welfare. In Amazon's antitrust paradox Khan said measuring Amazon's dominance on short-term benefits to consumers misses the potential longer-term harm to market structures and competition and underappreciates the risk of predatory pricing. Khan said the narrow antitrust focus misjudges how integration across distinct business lines may prove anticompetitive because the platforms serve as infrastructure for rivals and the economics of platforms promotes growth over profits. Thus predatory pricing is rational, she said, when today's narrow antitrust doctrine treats it as irrational and implausible. Another consequence is that platforms can exploit information collected on companies using their services to undermine them as rivals.[23] Her solution was to restore the traditional broader antitrust and competition policy principles or apply common carrier obligations and duties on the platforms, proposals Khan and others of her ilk now have the regulatory power to pursue. Flawed solutions In 2012, Facebook paid US$1 billion for Instagram when the photo-sharing app employed just 13 people, had only 30 million users and earned no revenue.[24] The US regulator voted 5-0 to allow the deal[25] while the UK supervisor approved the purchase because Instagram was in no position to compete against Facebook "as a potential social network or as a provider of advertising space".[26] Regulators missed that Facebook was buying a rival that might divert people from its platform, the same motive that prompted Facebook in 2013 to bid unsuccessfully for Snapchat[27] and in 2014 to buy WhatsApp for US$19 billion with regulatory approval.[28] Alphabet, Amazon, Apple and Facebook, by the count of The Washington Post owned by Amazon's Jeff Bezos, have bought at least 607 companies in their rise to monopolistic or oligopolistic control over their tech spheres that have become central to daily life.[29] Suggestions for curbing Big Tech are plentiful. Their implementation, however, often looks problematic. Some have argued, for instance, that Amazon should be subject to common carrier obligations (ensure other businesses have equal and fair access to the platform) to curb its power in retail and be prevented from favouring its products. But why would Amazon be treated like a utility when it only accounted for just below 5% of US retail sales in 2020, hardly monopoly control? Why would online and offline competitors be able to favour their products and not Amazon? For those who suggest that the platforms be regulated like utilities, many propose the 'regulated asset base' model of oversight. Under this model, utilities earn a return akin to what they would earn competing against an imaginary competitor that was meeting its cost of capital. Valuing the intellectual capital of the platforms would be just one hurdle.[30] Others propose that users own their behavioural data, connections or search history. But apathy might prevent much changing. Stronger privacy laws would dim Big Tech's sway but this would inhibit innovation. Some say Facebook should be made interoperable - when data can be shared with other sites - akin to how AOL was forced to make its Instant Messenger interoperable in 2001.[31] Would people bother switching? Others suggest that Facebook be forced to become a subscription service.[32] But politicians might baulk at making users pay for something a company is offering at no charge. Another solution is tougher regulations on how algorithms target and sort information and people and steep penalties for their misuse.[33] A more-radical proposal would be for governments to set up publicly owned platforms to compete against the established privately owned platforms. But no one in the US is serious about this path. Another radical proposal is to dismantle the platforms. But that would diminish the network effect for users, nullify economies of scale, Amazon A might eventually dominate Amazon B, C, D and E anyway, and such a path presages years of court battles with no guarantee of success for antitrust forces. Perhaps pertinent for those intent on breaking up Big Platforms are the unintended consequences of Roosevelt's successful battle to dissolve Rockefeller's Standard Oil. In 1911, Rockefeller was playing golf when he was given the news the Supreme Court had ordered Standard Oil to be split into 34 companies. He asked his golf partner, a Catholic priest, if he had any money. The priest said no and asked why. "Buy Standard Oil," was Rockefeller's response. It was sound advice for, in one biographer's view, "it was the luckiest stroke of his career". Only three years after Henry Ford produced his first Ford Model T, Rockefeller now owned about 25% in 34 oil companies that soared in value when investors could glimpse the assets in listed companies that had previously been largely privately held.[34] And didn't Roosevelt know he had made Rockefeller the world's richest person. In 1912, Roosevelt re-entered presidential politics by creating the Bull Moose party. At one stop during his failed campaign, Roosevelt roared: "Rockefeller and his associates have actually seen their fortunes doubled. No wonder that Wall Street's prayer now is: Oh Merciful Providence, give us another dissolution."[35] [1] Roosevelt has come fourth in the past four C-SPAN surveys of historians where they rank the US presidents. The past four surveys were conducted in 2021, 2017, 2009 and 2000. In the past three, Abraham Lincoln came first, George Washington second and Franklin D. Roosevelt third. c-span.org/presidentsurvey2021/?page=overall [2] Kathleen Dalton. 'Theodore Roosevelt. A strenuous life.' Vintage Books. 2002. Page 204. [3] Dalton. Op cit. Pages 224 to 226. [4] WIRED. 'Net states rule the world; we need to recognise their power.' Alexis Wichowski from Columbia University's School of International and Public Affairs. 4 November 2017. wired.com/story/net-states-rule-the-world-we-need-to-recognize-their-power/ [5] House Committee of the Judiciary. 'Markups'. 23 June 2021. The six bills are H.R. 3843, the Merger Filing Fee Modernization Act of 2021; H.R. 3460, the State Antitrust Enforcement Venue Act of 2021; H.R. 3849, the Augmenting Compatibility and Competition by Enabling Service Switching Act of 2021 or the ACCESS Act of 2021; H.R. 3826, the Platform Competition and Opportunity Act of 2021; H.R. 3816, the American Choice and Innovation Online Act; and H.R. 3825, the Ending Platform Monopolies Act. judiciary.house.gov/calendar/eventsingle.aspx [6] House of Representatives. 'H.R. 3825 - Ending Platform Monopolies Act.' Entered 11 June 2021. congress.gov/bill/117th-congress/house-bill/3825/text. See release by Congressman Lance Gooden, who introduced the bill. 'Congressman Gooden introduces the Ending Platform Monopolies Act.' 11 June 2021. gooden.house.gov/media/press-releases/congressman-gooden-introduces-ending-platform-monopolies-act [7] Tim Wu. 'Be afraid of economic 'bigness'. Be very afraid.' 10 November 2018. The New York Times. nytimes.com/2018/11/10/opinion/sunday/fascism-economy-monopoly.html. See also, 'Tim Wu explains why he thinks Facebook should be broken up.' WIRED. 5 July 2019. wired.com/story/tim-wu-explains-why-facebook-broken-up/ [8] Federal Trade Commission. 'FTC rescinds 2015 policy that limited its enforcement ability under the FTC act.' 1 July 2021. ftc.gov/news-events/press-releases/2021/07/ftc-rescinds-2015-policy-limited-its-enforcement-ability-under [9] Federal Trade Commission. 'FTC votes to update rulemaking procedures sets stage for stronger deterrence of corporate misconduct.' 1 July 2021. ftc.gov/news-events/press-releases/2021/07/ftc-votes-update-rulemaking-procedures-sets-stage-stronger [10] The White House. 'Fact sheet: Executive order on promoting competition in the American economy.' 9 July 2021. whitehouse.gov/briefing-room/statements-releases/2021/07/09/fact-sheet-executive-order-on-promoting-competition-in-the-american-economy/ [11] See "Amazon ends use of arbitration for customer disputes.' 22 July 2021. nytimes.com/2021/07/22/business/amazon-arbitration-customer-disputes.html [12] See US Department of Justice Antitrust Divisions 'Complaint' filed against Aon and Willis Towers Watson. Filed to the US District Court for the District of Columbia. 16 June 2021. justice.gov/opa/press-release/file/1404951/download. The EU had approved the takeover. Berkshire Hathaway, fearing FTC pushback, in May/June abandoned the purchase of pipeline assets from Dominion Energy. See 'Wall Street and Warren Buffett miss the good old days.' 27 July 2021. Bloomberg News. bloomberg.com/opinion/articles/2021-07-26/wall-street-and-warren-buffett-miss-the-good-old-days [13] 'Amazon seeks recusal of FTC chair Khan, a longtime company critic.' 30 June 2021. The Washington Post. The newspaper is owned by Amazon founder Jeff Bezos. washingtonpost.com/technology/2021/06/30/amazon-khan-ftc-recusal/. 'Facebook seeks recusal of FTC chair Lina Khan amid high-profile antitrust case.' 14 June 2021. The Washington Post. washingtonpost.com/technology/2021/07/14/facebook-seeks-recusal-ftc-chair-lina-khan/ [14] Supreme Court of the US. Ruling. 'AMG Capital Management, LLC et all v Federal Trade Commission.' 22 April 2021. supremecourt.gov/opinions/20pdf/19-508_l6gn.pdf. See also, Mike Davis, founder Article III Project. 'Congress must empower the FTC to fight tech's abuses.' Newsweek. 29 July 2021. newsweek.com/congress-must-empower-ftc-fight-big-techs-abuses-opinion-1614105 [15] See Axios. 'Judge dismisses FTC's antitrust complaint against Facebook.' 28 June 2021. axios.com/judge-dismisses-ftcs-antitrust-complaint-against-facebook-b4612f7a-2f82-4462-91d3-36612c56416e.html. See also Federal Trade Commission. 'FTC sues Facebook for illegal monopolisation.' 9 December 2020. ftc.gov/news-events/press-releases/2020/12/ftc-sues-facebook-illegal-monopolization. More than 40 state attorneys were involved in the case. [16] Some parts of tech seem safe from antitrust efforts. See WIRED. 'Biden's antitrust revolution overlooks AI - at Americans' peril.' 27 July 2021. wired.com/story/opinion-bidens-antitrust-revolution-overlooks-ai-at-americans-peril/ [17] The allegation is that Trump ordered Gary Cohn, then the director of the National Economic Council, to pressure the Justice Department to block AT&T's takeover of Time Warner (now known as Warner Media) out of spite of CNN. The allegation was made by Jane Mayer in 'The making of the Fox News White House'. The New Yorker. 4 March 2019. newyorker.com/magazine/2019/03/11/the-making-of-the-fox-news-white-house [18] Senator John Sherman speaking in the US Senate. Congressional Record. Senate 1890. Page 2,461. appliedantitrust.com/02_early_foundations/3_sherman_act/cong_rec/21_cong_rec_2455_2474.pdf [19] US Federal Trade Commission. 'FTC fact sheet: Antitrust laws: A brief history." Undated. consumer.ftc.gov/sites/default/files/games/off-site/youarehere/pages/pdf/FTC-Competition_Antitrust-Laws.pdf. Federal Trade Commission. 'The antitrust laws.' ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws [20] The Robinson-Patman Act of 1936 amended the Clayton Act to ban certain discriminatory prices, services, and allowances in dealings between merchants. The Clayton Act was amended again in 1976 by the Hart-Scott-Rodino Antitrust Improvements Act to require companies planning large mergers or acquisitions to notify the government of their plans in advance. See the Federal Trade Commission 'The antitrust laws.' ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws [21] See Robert Bork. 'The antitrust paradox. A policy at war with itself.' The Free Press. 1978. The introduction, chapter 1 and epilogue can be found at: amazon.com/Antitrust-Paradox-Robert-H-Bork/dp/0029044561 [22] See Maurice E. Stucke and Ariel Ezrachi. 'The rise, fall, and rebirth of the US antitrust movement.' Harvard Business Review. 15 December 2017. hbr.org/2017/12/the-rise-fall-and-rebirth-of-the-u-s-antitrust-movement [23] Lina M. Khan. 'Amazon's antitrust paradox.' The Yale Law Journal. Volume 126 2016-2017. Number 3. January 2017. yalelawjournal.org/note/amazons-antitrust-paradox [24] UK Office of Fair Trading. Release. 'Anticipated acquisition by Facebook Inc of Instagram Inc.' 14 August 2012. webarchive.nationalarchives.gov.uk/20140402232639/http://www.oft.gov.uk/shared_oft/mergers_ea02/2012/facebook.pdf [25] Federal Trade Commission. 'FTC closes its investigation into Facebook's proposed acquisition of Instagram photo-sharing program.' 22 August 2012. ftc.gov/news-events/press-releases/2012/08/ftc-closes-its-investigation-facebooks-proposed-acquisition [26] UK Office of Fair Trading. Op cit. [27] The Wall Street Journal. 'Messaging service Snapchat spurned $3 billion Facebook bid.' 13 November 2013. wsj.com/articles/messaging-service-snapchat-spurned-facebook-bid-1384376628 [28] See Federal Trade Commission. Release. 'FTC notifies Facebook, WhatsApp of privacy obligations in light of proposed acquisition.' 10 April 2014. ftc.gov/news-events/press-releases/2014/04/ftc-notifies-facebook-whatsapp-privacy-obligations-light-proposed. See European Commission. Press release. 'Mergers: Commission approves acquisition of WhatsApp by Facebook.' 3 October 2014. europa.eu/rapid/press-release_IP-14-1088_en.htm [29] The Washington Post. 'How Big Tech got so big. Hundreds of acquisitions.' 21 April 2021. washingtonpost.com/technology/interactive/2021/amazon-apple-facebook-google-acquisitions/ [30] See The Economist. Schumpeter. 'What if large tech firms were regulated like sewage companies?' 23 September 2017. economist.com/business/2017/09/23/what-if-large-tech-firms-were-regulated-like-sewage-companies [31] Mark Stoller. Fellow at the Open Markets Institute. Tweet. 'We know one way to regulate Facebook. DOJ forced AOL messenger interoperability in 2001. It worked.' 6 October 2017. twitter.com/matthewstoller/status/916316360807985153 [32] Roger McNamee, managing director of Elevation Partners. 'How to fix Facebook: Make users pay for it.' 21 February 2018. washingtonpost.com/opinions/how-to-fix-facebook-make-users-pay-for-it/2018/02/20/a22d04d6-165f-11e8-b681-2d4d462a1921_story.html [33] See Martin Sandbu. Financial Times. 'Free Lunch' columnist. 'Civilising the digital economy. Ownership rights and algorithmic accountability.' 24 February 2018. ft.com/content/a245e882-1882-11e8-9e9c-25c814761640 [34] 'Titan. The life of John D Rockefeller Sr.' Ron Chernow. Warner Books. 1998. Page 545. By one count the largest federal antitrust suit of the day against the biggest empire of the day, it entailed 444 witnesses who delivered 11 million words of testimony. Add on 1,374 exhibits, and the proceedings filled 12,000 pages in 21 volumes. On top of that were another 21 state antitrust suits. [35] Chernow. Op cit. Pages 556 and 557. Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 ('Magellan') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should read and consider any relevant offer documentation applicable to any investment product or service and consider obtaining professional investment advice tailored to your specific circumstances before making any investment decision. A copy of the relevant PDS relating to a Magellan financial product or service may be obtained by calling +61 2 9235 4888 or by visiting www.magellangroup.com.au. Past performance is not necessarily indicative of future results and no person guarantees the future performance of any strategy, the amount or timing of any return from it, that asset allocations will be met, that it will be able to be implemented and its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of a Magellan financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. This material may include data, research and other information from third party sources. Magellan makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Magellan. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Any trademarks, logos, and service marks contained herein may be the registered and unregistered trademarks of their respective owners. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Magellan. |
Funds operated by this manager: Magellan Global Fund (Hedged), Magellan Global Fund (Open Class Units) ASX:MGOC, Magellan High Conviction Fund, Magellan Infrastructure Fund, Magellan Infrastructure Fund (Unhedged), MFG Core Infrastructure Fund |

2 Sep 2021 - New Funds on Fundmonitors.com
New Funds on Fundmonitors.com |
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1 Sep 2021 - Laureola Investment Fund Review Q2 2021
Laureola Advisors' quarterly webinar where they review performance in Q2 2021, analyze their current portfolio, as well as discuss upcoming developments over the rest of the year. Funds operated by this manager: |

31 Aug 2021 - Longlead Capital Partners - 2021 Mid-Year Pan-Asian Equity Market Review

30 Aug 2021 - Managers Insights | Vantage Asset Management
Damen Purcell, COO of Australian Fund Monitors, speaks with Michael Tobin, Managing Director of Vantage Asset Management. The current offer of Vantage Private Equity Growth 4 is a closed-ended fund. The Fund's inception date is 30 September 2019 and the close date is 30 September 2021. The Fund will invest in Private Equity funds based in Australia, along with Permitted Co-investments, to create a well diversified portfolio of Private Equity investments. Prior Vantage Funds continue to perform well with June seeing a composite performance of +2.42%. Quarterly performance was +8.64% and 12 month performance +58.73%.
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30 Aug 2021 - Domino's set to fatten wallets too
Domino's set to fatten wallets too Insync Fund Managers August 2021 Covid 19, Asian tastebuds and smart tech is driving the 'Supreme' growth in the pizza delivery giant says Insync Domino's Pizza CEO Ritch Allison told CNBC that the Covid economic reopening has actually provided a boost for the company, helping fuel same-store sales growth during the second quarter. Allison said that "while the pizza chain certainly benefited from a pandemic-related rise in takeout and delivery orders last year, the company also had to weather a loss of sales at key times such as weekends. Now, as health restrictions ease, that part of its business is returning" "Think about late-night business. Think about the weekend business when people are gathering to watch a game or have a family event or something like that. That went away last year. It's coming back this year" added Allison, who has served as Domino's CEO since July 2018. "I'd also like to highlight a few international markets that drove terrific growth during the quarter. China passed the 400-store milestone during Q2 and once again Dash, our master franchise partner delivered outstanding retail sales growth for the brand. China is without question one of the most exciting businesses in the Domino's system with significant long-term runway for growth." The comments came after Domino's stock hit an all-time high Thursday and finished up 14.55% Thursday, as Wall Street cheered the company's better-than-expected quarterly results released before the bell. John Lobb, Senior Portfolio Manager for Insync Funds Management noted "It's not just the convenience and value for money that is driving the outstanding growth in Domino's internationally, but their heavy investment in class leading technology across their network that results in incredibly efficient ordering, production and delivery. Domino's are showing that internal food delivery can be profitable rather than relying on more expensive and less reliable external modes such as Uber Eats and Deliveroo" Insync Funds Management has been an investor in Domino's US since September 2019 as part of the "Food Away from Home" theme, along with 15 other Global Megatrends reshaping our world and driving long runways of growth in the most innovative, profitable and well-run enterprises. These Megatrends have delivered an outstanding 11 year track record for the boutique global manager domiciled here in Australia. See Insync's background on Domino's :
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Funds operated by this manager: Insync Global Capital Aware Fund, Insync Global Quality Equity Fund |

27 Aug 2021 - Picking Winners from 'creative destruction'
Picking Winners from 'creative destruction' Vihari Ross, Magellan Asset Management August 2021 At Magellan, we deliberately narrow our investment universe. There are large swathes of the market we never approve for investment. Sometimes this means we can miss out on returns as the bandwagon trumpets the latest must-have stock. But we're fine with that. Why? Many of you might have heard this one before - the phenomenon commonly referred to as creative destruction, a term first coined by Austrian-born economist Joseph Schumpeter in 1942. As he wrote in his book, Capitalism, Socialism & Democracy, the "gale" of creative destruction is presented as "the essential fact about capitalism" that incessantly "revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one". In simple terms, this means innovation makes the old ways of doing things obsolete. At the start of the 20th century, the best example of this was the Ford motor car of 1908 rendering the best horse-and-buggy companies obsolete. Some accounts suggest there were more than 250 car makers in the US by the 1920s and the uptake of cars spurred new industries and success stories in retailing, tourism, oil, and industry. The Ford Model T was also eventually superseded by the technology developed by General Motors. In more recent times, we have seen steam turbines replaced with natural gas and oil and now solar, wind or renewable fuel farms. Closer to home, the television replaced radio and is now being dethroned by on-demand, individualised cloud-hosted entertainment. Much like fashion or technology, where built-in obsolescence is key to maintaining interest, so too the music from that bandwagon, currently spruiking stock picks via internet memes, will also eventually fade. The idea here is that economic growth is fuelled by creative destruction because as the latest innovations replace the old, significant upswings in productivity are achieved. It is also important to note that despite the excitement of new technologies such as electric vehicles, for example, the rewards of this progress do not necessarily reside with shareholders, but often with society, employees, and customers. This may ultimately hurt hopeful investors where singular success has been built into share prices as seen for a 'market darling' such as Tesla. This matters because share markets aren't driven by the median stock or the average of all stocks, as many an index proprietor would have you believe. Winners generate all the market's performance when measured over appropriate long-term time frames. In fact, using the S&P 500 Index as a yardstick, 40% of stocks report negative returns over their lifetimes. About 66% of stocks underperform the index in which they are placed over their lifetimes. That is to say, winners drive markets.
While it is unsurprising that some businesses experience negative lifetime returns post inclusion in an index, it is the magnitude that is astonishing. While the facts presented above show that creative destruction has played out over many decades, there is evidence that this phenomenon is becoming more, rather than less, prevalent. A recent study by McKinsey found that the average lifespan of companies listed on the S&P 500 has reduced to 18 years from 61 years in 1958. Furthermore, McKinsey forecasts that by 2027, 75% of the companies quoted today on the S&P 500 will have departed and that the average longevity of companies will reduce further to 12 years. Time will tell whether this dire prediction proves true. When considering this issue of the high proportion of losers within any stock index, it is interesting to examine at a micro level what happens to companies and to understand why so many fail. US investment legend Charlie Munger famously referred to these natural changes in market composition as like human biology; much like creative destruction, new replaces old again and again. "In biology, what happens is the individuals all die, and eventually, so do all the species. Capitalism is almost as brutal as that," he said. "The one thing I will say is that a lot of the moats that looked impassable, people found a way to displace. Think of all the monopoly newspapers that used to be, in effect, part of the government of the United States. And they're all dying ... A lot of the old moats are going away, and, of course, people are creating new moats all the time. That's the nature of capitalism" "You have the finest buggy whip factory and all of a sudden in comes this little horseless carriage. And before too many years go by, your buggy whip business is dead. You either get into a different business or you're dead…It happens again and again and again." Companies that fail are often the former titans, the household names. While many of these operated in competitive industries, some were businesses with such reach and dominance that their competitive advantages, or 'moats', seemed unsurmountable, and indeed the industries have often bustled on while these incumbents failed within them, failing to keep up with new competition. General Motors, for instance, had the dominant dealer network across the US and had mass-production economies of scale but failed to compete with cheaper foreign cars and changing consumer preferences. US department-store chain Sears dominated mass-market retail and at its peak was larger than its next four competitors combined, conferring significant bargaining power against suppliers. This share was eaten away by the emergence of speciality retailers and Kmart and Walmart. Sears' blinkered view of Walmart was something founder Sam Walton was famously disdainful of. IBM had a significant incumbency advantage in installed machines across its customers, but its success bred complexity and bureaucracy and a reliance on its mainframe business gravy train. The company invented the microprocessor in the 1970s but this innovation competed with its mainframes. It used Microsoft and Intel as suppliers rather than seeing them as rivals at a time when software was becoming the source of value. Indeed, IBM's support gave these companies legitimacy and early success. Likewise, Xerox didn't take the competition from Japanese rivals who undercut it with simpler and cheaper copiers seriously. What Munger references and the famous examples above show are classic disruptive threats to strong incumbents. These threats can be multi-faceted, but include:
Often the issue lies within companies. Management fails to be agile and innovative, wanting to protect their legacy businesses while encumbered by complacency and size (versus the default assumption of being advantaged by it). Alternatively, ignoring disruptive change or old-fashioned excess leverage over expansion or poor M&A decisions based on poor short-term incentive structures may be at fault - classic 'agency risk'. But sometimes the changes are beyond management control. These are typically assessed as business risks at Magellan and are often innate to the operations of the company. Outside threats can include:
Companies that are low quality or contain excessive business or agency risks will not qualify for our approved lists. You could argue that companies that have grown to the point of being listed and making it into a major index are already winners. And you'd be right. However, while making it to the top certainly increases a company's chance of success, it doesn't mean it'll stay there. Companies willing to disrupt themselves are more likely to have longevity, and on average the traditional 'defensives' of consumer staples and utilities also tend to last longer than the exciting ones. Recessions typically 'clean out' companies that were weaker than they might have appeared prior to the shock. In recent times, low rates and a flood of available capital have no doubt aided entrepreneurship but have also enabled company longevity as it has allowed otherwise failing businesses to continue to operate with increased debt. It is estimated that 'zombie' companies, those generating cash flows less than their debt-servicing obligations, comprise 25% of the S&P 500 at present. These low-quality companies are relying on an ability to increase debt (no increase in risk aversion) and at continued low rates (which a rise in underlying inflation may preclude). While excessive leverage has always been a source of business failure, this recent escalation does pose a more noticeable risk to markets in coming years. Looking ahead, we can observe that many of our largest incumbents have not left 'disruption gaps'. Alphabet and Microsoft are investing their substantial annual cash flows into new technologies. Cloud enables low- and high-spec customers to be addressed by the same scalable platform that then precludes the cheap substitute risk. Facebook provides its service at no charge, supported by revenue from a long list of small-business advertisers. Further, not all companies are at risk of disruption from competitive threats. Indeed, Procter & Gamble, one of the oldest companies in the S&P 500 and incorporated in 1890, shows resilience to disruptive threats today and is one of only 10 US companies that has paid a dividend for more than 120 consecutive years. Similarly, Louis Vuitton is a remarkable brand with longevity, in business since 1854. Many large consumer brand companies continue to enjoy significant economies of scale and capital advantages and after slow starts have adapted rapidly to a digital world. Changes in consumer preferences in health and wellness, including plant-based foods, reduced sugar consumption and allergy management have seen these companies make substantial investments to ensure their offerings stay up to date. That is to say, the companies that qualify for our investment universe are in our view addressing and, in many cases, benefiting from disruptive change. In future, it will be harder for upstarts like the Dollar Shave Club to displace Gillette as large incumbents harness their size to innovate and engage with customers via digital platforms. However, the shift to e-commerce, the utilisation of the cloud and decarbonisation, among other shifts, highlight the threat of creative destruction for dominant businesses. As such, we must reassess the merits and quality of each business as the world changes and as our views around regulatory and geopolitical risks evolve. This cements our focus on taking a forward-looking view and intimately understanding industries and disruption as a threat to competitive advantage. Of course, a quality business alone does not a quality investment make. These quality businesses must also be purchased at appropriate valuations, but as an important starting point, we don't take our approved list of stocks for granted at Magellan. Monitoring and understanding business risks and how industries and indeed our own lives will change in the years ahead is required to understand the ongoing eligibility of stocks and to avoid being exposed when the 'tide goes out' in markets. Funds operated by this manager: Magellan Global Fund (Hedged), Magellan Global Fund (Open Class Units) ASX:MGOC, Magellan High Conviction Fund, Magellan Infrastructure Fund, Magellan Infrastructure Fund (Unhedged), MFG Core Infrastructure Fund |

26 Aug 2021 - A (mostly) good news story
A (mostly) good news story Emma Fisher , Airlie Funds Management July 2021 It is an unfortunate, yet widely accepted maxim that good news doesn't sell newspapers. However, as we reflect on the end of another twelve months that leaves us wanting to see the word "unprecedented" banned from the dictionary, we find ourselves feeling optimistic. Household and corporate balance sheets are in great shape, helped along by international border closures. Australians spend $65b a year overseas, and that money is now trapped in our local economy. While we lose out on the $45b we typically bring in from tourists annually, these imported tourist dollars tend to find their way only into very targeted parts of the economy; such as, the travel, tourism, and hotel sectors. By contrast, trapped locals are spending widely across the economy and saving too: we're seeing it in record deposit levels for the banks, in booming retail spend, rebounding new car sales and record used car prices. It's becoming clear that international borders are likely to remain shut for a while yet, so we expect this strength to continue. The economic backdrop is further supported by rising house and record iron ore prices. Put simply, the Australian economy is in the best shape it's been in years. Further, we've managed the pandemic better than other countries, yet the performance of our stock market has lagged, only recently exceeding pre-pandemic highs. As per below, in October our market was one of the worst-performing major markets, despite our economy being one of the most resilient in the world. We made the case six months ago that the Australian market looked like good value in a relative sense, and the subsequent 10% rally likely reflects that.
Source: MST Marquee Risks to the outlook 1. Inflation So where to now? The first potential fly in the ointment is always interest rates, given the price of money sets the price of every asset class globally. The main debate raging in markets right now is about inflation. With inflation numbers rebounding off last year's global economic decimation, the debate is over whether it is likely to be transitory (a one-off bump as supply chains normalise post-Covid) or structural (a multi-year demand unleashed and things get out of hand). We are certain that we will see an uptick in the near term in inflation; most of the companies we talk to are calling out pretty significant raw material and labour market inflation, and a desire to pass this through in terms of price increases. So it is definitely underway. As for what happens after that - exact corollaries in history are impossible to find, but we see two possible precedents:
Obviously if it is more like the latter scenario, every asset globally is overvalued. However, a few things lead us away from thinking scenario two is likely. Firstly, the 1970s was an era with a lot of directly inflation-indexed wages, which added to the feedback loops that saw raw materials spikes driving a wages/prices spiral. Secondly, debt is a very deflationary force, and the world has a lot more debt now than the 1970s. The increase in global debt levels increases the sensitivity of debt-holders (which include most homeowners) to increases in interest rates. So you get a demand response very quickly when you increase rates, which is what we saw in 2018. In Australia, we see monetary policy settings stuck in emergency mode, when there is no (economic) emergency. Anyone who's attended an auction recently can tell you interest rates are too low. This will need to be addressed over the next few years; however, in our view, one or two rate rises would likely dampen demand enough to have the desired effect. We do not think we'll see cash rates heading back towards 3% (which would be very bad for equity markets). So we lean towards thinking structural inflation is a tail risk for portfolios, rather than a base case. In all fairness, this has been the "consensus" view for the last six months, but we note a subtle shift is taking place, with more and more voices leaning towards scenario two. So we think the market is beginning to worry about a more extreme inflationary scenario, which could throw up opportunities. 2. China The other tail-risk for markets is the worsening diplomatic relationship between Australia and China. We've avoided exposure to companies that generate the bulk of their revenue in the Chinese market. Where we remain vulnerable in our portfolio is through our position in resource companies such as BHP and Mineral Resources. We can't rule out trade disputes spilling into iron ore, however unlikely; mining participants warn us they believe China is willing to "shoot itself in the foot to hurt Australia". In order to mitigate this risk, we invest only in mining companies with diversified earnings (not solely iron ore), and rock solid balance sheets: Mineral Resources is net cash, and BHP should end this year with net debt of only 0.2x EBITDA.
Hitting the road: observations from our travels We have availed ourselves of reopened state borders to get back out on the road again this year, with trips to Brisbane, the Gold Coast, Melbourne and WA. These trips left us feeling enthused about the high-end, quality operations and the level of innovation being undertaken across the country. In April we travelled to Ormeau, Gold Coast to meet with Kees Weel, CEO and founder of our portfolio holding, PWR Holdings. PWR make radiators and cooling systems for motorsports (supplying every Formula 1 team), high-end original equipment manufacturers (e.g. Porsche, Aston Martin) and a number of exciting emerging applications such as electric vehicles and defence. We were blown away by the level of technical expertise and innovation in walking the factory floor, and it's always good to be hosted by a CEO who greets everyone in the factory by name. This is a true Australian success story; PWR's radiators are regarded as some of the best in the world, and PWR enjoys very healthy economics as a result (c30% EBIT margins, >40% return on invested capital). In June we travelled to WA and met with a few mining companies. We were left feeling that the shift to a global clean energy system should create fantastic opportunities for Australia, which is rich in many of the mineral resources that are needed to facilitate this shift over the next 20 years. Further, geopolitical tensions could play in Australia's favour, with the desire for countries and OEMs to construct ex-China battery supply chains providing an opportunity for Australia to exploit its position as a low-cost supplier of critical battery materials such as lithium and nickel. One particularly exciting opportunity is in lithium. In order to meet our Paris Agreement targets, the IEA estimates the world will require over 40x more lithium than was used in 2020, driven by a 25x increase in EV sales.
Source: IEA Unlike other battery metals, whose demand profiles are greatly influenced by the way battery technology develops over the next few decades, lithium demand is relatively immune to the way battery chemistry ends up going. On the supply side, the industry has just gone through its first proper boom/bust cycle. With lithium prices more than halving from their 2017 peak, many new projects were scrapped and mines put on care and maintenance. Now, with demand picking up, the industry looks set for a supply deficit emerging as early as next year. As such, we would expect further price rises. Source: Credit Suisse This is good news for two portfolio holdings: Mineral Resources, which operates Mt Marion and (currently mothballed) Wodgina mines, and Wesfarmers, which recently acquired Kidman Resources and is developing a lithium hydroxide plant in Kwinana, WA. For Mineral Resources, we think their lithium business has the potential to be worth >$3b, well in excess of the current c$1.2b we believe the market is valuing it at today, or $10 a share on today's $50-odd share price. Overall, we feel the future is bright for a number of Aussie industries and businesses, and we remain happy co-investors along the way.
APPROVED DISCLAIMERS RETAIL Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946, AFS Licence No. 304 301 trading as Airlie Funds Management ('Airlie') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should read and consider any relevant offer documentation applicable to any investment product or service and consider obtaining professional investment advice tailored to your specific circumstances before making any investment decision. A copy of the relevant PDS relating to an Airlie financial product or service may be obtained by calling +61 2 9235 4760 or by visiting www.airliefundsmanagement.com.au. Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of an Airlie financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. This material may include data, research and other information from third party sources. Airlie makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Airlie. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Any trademarks, logos, and service marks contained herein may be the registered and unregistered trademarks of their respective owners. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Airlie. Funds operated by this manager: |

This narrative is often coupled with the forecast that "value" is likely to outperform "growth".
26 Aug 2021 - Why sell great businesses for the mediocre?
Why sell great businesses for the mediocre? Bob Desmond, Claremont Global July 2021 Within the last 12 months the market narrative has switched from fears of deflation to concerns of inflation. This narrative is often coupled with the forecast that "value" is likely to outperform "growth". In this article, I discuss why, rather than focusing on economic predictions, or market themes such as value or growth, we prefer to focus our efforts on a concentrated portfolio of 10-15 high quality companies whose earnings are likely to be materially higher in 5-10 years and whose current price should allow the fund to meet its long-term return objectives of returning 8-12 per cent per annum (p.a) ― regardless of what economic outcome prevails. Let's start with the inflation/deflation question. Those arguing that inflation is on the way like to point to the following factors - a rapidly growing money supply, artificially low interest rates, growing budget deficits, wage pressures and rising commodity prices. It makes for a pretty convincing argument. However, when I talk to the deflationists, they like to point to ageing demographics, record debt levels and the ever-present deflationary forces coming from technology. They also note that after the global financial crisis (GFC) the same narrative that quantitative easing (QE) and high commodity prices would lead to inflation, has so far been wrong. Those arguing for inflation will point to the Austrian economists and the experience of the 1970s, while the deflationists will point to Japan and more recently the period following the GFC. To be honest, I find both camps make reasonable arguments. This is why, when asked by clients, my answer is quite simply "I don't know". Experience over many years has taught me that things the "experts" tell us are "obvious", often don't come to pass. Below I list some "obvious" events that never came to be. One. In the late 1980s it was "obvious" Japan would come to dominate the global economy, just before they entered a 30-year period of relative economic decline. Two. The stock market crash of 1987 that would usher in what some people thought was a new "Great Depression". In reality, share indices were up in that year and the economy did not experience a recession for another three years. Three. The GFC that would lead to a new "Great Depression" and a lost decade. In reality, the US achieved record low unemployment of 3.5 per cent in 2019 and the stock market is up over six times from its 2008 lows. Four. The exit of Greece from the Eurozone and the impending collapse of the Euro in 2012. Five. The collapse in oil prices by over 60 per cent in 2014, when "experts", including the Federal Reserve, said oil would remain above $100 per barrel indefinitely. Six. Less than one third of the "expert" pollsters actually predicted Brexit. Seven. Only two major polls predicted that Trump would win the US Presidential Election in 2016 and ― even if you got that forecast right ― who then predicted that the market would rise by 14 per cent p.a. during his Presidency? As an aside, I also remember the narrative ― very similar to now ― that Trump would spend large amounts on infrastructure and reduce the market dominance enjoyed by the large technology companies. This actually provided a very nice buying opportunity for large cap technology. Eight. In 2008 I did not see one single economic forecast that suggested in 2021 we would have negative yielding bonds, double-digit budget deficits and people talking about modern monetary theory (MMT). Nine. The "experts" at the Treasury who forecast that COVID-19 would see the Australian economy shrink by 20 per cent, only to see output at a new record high in Q1. The legendary Ben Graham was not one for economic or market forecasts:
Like Ben Graham, our investment process is totally devoid of any economic or market forecasts. You will not see our daily investment meetings start with an analysis of the latest musings from the Federal Reserve or the latest production numbers from China. It is not to say we don't read newspapers and have our own personal views, but we deliberately exclude projections about the economy, markets, themes or sector "bets". Focus on quality companies We control our overall risk through the quality of our portfolio companies. Rather than forecasting economics or markets, we simply prefer to focus on earnings power, balance sheet strength and sustainable competitive advantage. To look forward, we always start by looking backwards, and our first point-of-call is to analyse how our businesses have fared in tough times - the GFC usually provides an excellent case study. Not one of our companies got into any form of financial difficulty, was forced to cut its dividend, or raise emergency capital. Over the last decade, the average earnings growth of the companies in the portfolio has been 12 per cent p.a. and across the portfolio, the weighted debt/EBITDA is 0.5x. As to sustainable competitive advantage, the operating margin across our portfolio is 25 per cent ― nearly two times the average US-listed business, and the average age of companies in the portfolio is over 80 years, with the oldest dating back to 1866. This does suggest some form of sustainable competitive advantage and resilience! As a result, this financial resilience and earnings power allows us to be confident that our companies are well placed to weather the inevitable adverse economic events when they occur. Knowing this, we are free to spend our time looking for companies with long-term sustainable competitive advantage and earnings power, rather than trying to forecast how economies and markets will affect the short-term cyclical prospects of what we own. Growth versus value And as for all the talk about buying traditional, beaten down "value" stocks? For argument's sake, let's assume the "experts" crystal ball is in good order ― should we switch from "growth to value"? What does this actually mean in practice? Well, first of all, we would be forced to sell a portfolio of competitively advantaged businesses (and pay a lot of tax and brokerage) to put together a portfolio that had exposure to banks, oils and other more cyclical businesses. This collection of businesses would have lower margins, higher balance sheet leverage and reduced long-term earnings power. An alphabetical perspective To take it one step further, let's assume you owned all of Alphabet (the parent company of Google) - would you really be happy to sell a business currently growing revenue at over 20 per cent, with over 90 per cent market share, a rapidly growing Cloud business and net cash of $120 billion? Would you really be happy to buy a collection of European banks, where instead of net cash, your equity is leveraged 10+ times; you have limited visibility of the loan or derivatives books and decreasing confidence in times of stress; your profits are at the whim of Central Bank interest rate policy experiments; and where capital allocation is also determined by the same regulatory authorities, bearing in mind banks were required to suspend dividend payments by the European Central Bank during the COVID-19 pandemic. Alternatively, would you really be happy to sell your dominant search engine monopoly to buy an oil business, whose profits are determined by a volatile commodity price input ― and in the long-term may potentially become extinct owing to new technology or inadequate reserve replacement. Any rational business owner would tell you this makes no sense at all!
Carrying on with the Google example. The company listed in 2004 at $85 a share and has since delivered a return of 22 per cent p.a. Over that period the Fed has met 136 times, which provides plenty of fodder for the economic and market prognosticators. How many of those "experts" predicted the GFC, the Euro crisis, Brexit, Trump becoming US President, COVID-19, negative yielding bonds, MMT etc? It did not require a huge leap of faith to see the Google search business was clearly superior to any alternative, with an increasing economic moat, driven by an incredible network effect, informational advantages and capital resources to hire the best talent and maintain its technological dominance. A long-term investor (as opposed to short-term speculator) would have generated a more predictable and healthier return by just buying what was clearly a great business and doing nothing. But no Doctor ever really achieved fame and fortune by recommending two aspirin and an early night! In summary, we believe what makes sense as a business owner, makes sense as an investor. We try not to forecast hard-to-predict events ― and even more importantly we don't sell great companies that we know intimately, to buy mediocre ones based on economic or market forecasts that are quite likely to be wrong. As Warren Buffett so aptly puts it:
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25 Aug 2021 - 10k Words - August Edition
10k Words - August 2021 Martin Pretty, Equitable Investors 9 August 2021 Apparently, Confucius didn't say "One Picture is Worth Ten Thousand Words" after all. It was an advertisement in a 1920s trade journal for the use of images in advertisements on the sides of streetcars. Even without the credibility of Confucius behind it, we think this saying has merit. Each month we share a few charts or images we consider noteworthy. There's plenty of takeover action on the ASX at the moment as is evident from Dealogic data and Deloitte surveying. But it isn't just the listed markets - Crunchbase highlights the unprecedented pace at which VC-backed startups by other VC-backed startups. What's relatively cheap or expensive in the Internet space? Research boutique MoffettNathanson has a crack at answering. Goldman Sachs, meanwhile, upgrades its return expectations for US equities. With Sydney in lockdown for weeks now and Melbourne recently joining it, data from ANZ shows a decline in consumer transactions since May BUT data from payments company Tyro shows year-on-year growth. ASX 200 executives expectations for the number of deals their organisation will pursue in the coming 12 months Source: Deloitte
Australasia Targeted M&A by Quarter ($US) Source: dealogic, WSJ
Acquisitions of VC-backed startups by other VC-backed startups Source: Crunchbase News Internet Sector annual forecast revenue growth relative to EV/revenue valuation Source: FT.com, MoffettNathanson
Drivers of Goldman Sachs' return expectations for the S&P 500 Source: Goldman Sachs
Sydney weekly spending Source: SMH, ANZ Research
Tyro's weekly transaction year-on-year growth (most recent transactions in red, prior 12 months in blue) Source: Wilsons
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