China, Berkshire, and some Portfolio Updates from the Rich and Famous
by Travis Johnson, Stock Gumshoe | November 16, 2022 11:44 am
Fine, call it a "Wednesday File" -- 13F updates, a couple companies that jump out, and some thoughts about the market's vibes...
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Source URL: https://www.stockgumshoe.com/2022/11/china-berkshire-and-some-portfolio-updates-from-the-rich-and-famous/
Not finding anything i want to buy. Had a Berkshire order on the books @285.00. The operative word being had. Still looking.
I can’t help but wonder why Buffet seems to believe Taiwan will be able to avoid it’s accelerated absorption by the Chinese government in the same manner as what happened to Shanghai? It seems our milquetoast politicians have already accepted it as unavoidable and have wisely decided to revitalize our own domestic chip manufacturing capabilities, to be funded by a huge influx of new federal funds. But that capability is a good way off – and China knows it. So how can investors who think Buffet may have made a major blunder best invest in our growing domestic chip industry?
alexho: I assume you meant to write Hong Kong and not Shanghai when you wrote about absorption by China. Circumstances in HK and Taiwan are vastly different. Just to cite two examples:
HKers always identified themselves as Chinese while residents of Taiwan increasingly self-identify as Taiwanese and not Chinese with the vast majority so identifying themselves these days. HK was always considered part of China, even when “leased” to the British. Taiwan was not ruled from the mainland until the Qing Dynasty in the late 1600’s and even then was considered by Chinese elites as outside the borders of the empire. At least one Emperor even offered to sell Taiwan to a European country.
Taiwan has its own military and unlike HK shares no land border with the PRC. It is certainly true that China has tipped the scales of military power significantly in its favor but Taiwan still has the ability to make an invasion by the PLA a dicey affair, especially if Taiwan modernizes to fight asymmetrically and not nose-to-nose with armor, fighters, and surface navy. A failed full-scale invasion of Taiwan would be disastrous for the CPC, possibly fatal, so Taiwan’s deterrence need not be perfect. And the PRC’s timetable for forcibly taking Taiwan was pushed back by at least five years, and maybe far more, due to Russia’s failures in Ukraine.
Taiwan Semiconductor and Intel will probably make more logic chips in the US than any other company ten years from now, given their accelerating investment plans, but that’s just a guess. GlobalFoundries and Micron and Texas Instruments and several others whose names don’t come immediately to mind also make a lot of chips in the US.
My perspective: If you buy Taiwan Semiconductor here, you’re not betting that China won’t absorb Taiwan… you’re just betting against a war or a blockade or a trade embargo. You’re betting that if it happens, it will be peaceful and gradual and will let trade more or less stay on track among the US, China and Taiwan. I don’t know what the odds are, of course, but everyone’s going to see the probabilities a little differently — will the world split in two and China and the US have their own separate sphere’s of trading? Or will things go sort of back to where they were pre-COVID (and perhaps pre-Trump), with a prickly but still very large and growing trade relationship and interdependence between the US and China? I wouldn’t “bet everything” on either division or reconciliation… but I’d be willing to bet a little bit on better relations between the US and China over the next decade, if only because that seems to be the contrarian bet.
Travis, thanks as always for your thorough analysis.
A request: I don’t think you’ve written anything recently about crypto- seems like a meltdown? or temporary volatility? I am thinking about whether to get out. Are you considering selling any crypto positions? TIA
I’ve taken a lot of profits on my crypto positions over the years, and sold some bigger chunks earlier this year, so the small stake that’s left, mostly in Bitcoin and Ethereum, is essentially just a long-term speculation that’s on hold.
Here’s my bias:
I have still never found a cryptocurrency “token” that seemed rationally interesting for real financial or operating reasons, to me they are all stories — and they therefore trade as emotional manifestations of how speculators feel. That means they can come roaring back, as they have the last couple times the prices collapsed, I have no idea where the next surge of emotion will take us, but I do expect that the institutional investors who got way out over their skis on crypto last year are probably going to be slow to embrace it again. Venture capitalists and hedge funds and similar institutions really got burned this time — and they probably know that they deserve it. They’re the ones who really fueled the last year’s move to treat Bitcoin and some much less established new tokens as almost real assets, as if there’s some underlying value beyond whatever the next person might pay for it, and therefore decided that it was reasonable to lend people millions of dollars to lever up crypto bets, sometimes at ridiculous size (like 100:1 leverage), with other cryptocurrencies as collateral, making Lehman Brothers look like it was unusually responsible in 2007. They also bought into startup stories with seemingly no due diligence or oversight at all, including desperately throwing money at FTX even though none of them got a board seat or even really knew what was happening under the hood (that’s OK for you and I throwing $1,000 at a cool idea… it’s insane for a professional venture capital firm using hundreds of millions of dollars of mostly pension fund money).
We’ll see. It’s a raw topic right now, so I may be overreacting. It could just be a fraud that blew up, maybe institutions will blame it on just one charismatic leader stealing a ton of money, and all will be forgiven and forgotten with the next great crypto idea or the next compelling evangelist, and the institutions will redouble their efforts to build a stronger foundation for cryptocurrency projects and tokens… but there’s a lot of Ponzi in even the simplest crypto investments, as far as I can tell, so many of them are circular or interrelated or have perverse rewards for ownership that can’t logically be justified, or represent really no ownership at all as the insiders really reap all the rewards… and my guess would be that it will be a while before crypto speculators fully trust the next big story or big new token.
I like having a little toe in the water, and it’s fun to see it balloon during the occasional wild market surges… but if I were forced to decide whether to double my crypto stake or reduce it to zero, I’d reduce it to zero. There are cool ideas out there, and maybe they’ll be big… but I think most folks who are not deeply embedded in the crypto world are also mostly trading these like they’re prize tulips in the 1630s.
As a bit of context, I first speculated on Bitcoin and Ethereum back in 2013. I sold my first meaningful chunk back in 2016, when Bitcoin was around $800. There was no objective justification for that price at the time, as there had been no justification when I bought, and it had no practical use other than as a way to expensively and almost anonymously move money around for people who had no other way to bypass borders (like those stuck in authoritarian regimes… or those trying to sell fentanyl on Silk Road). It became much more widely accepted as “real” over the past five years, largely driven by trading outside the US and by constant investment into mining and blockchain-related projects who largely based their value on either Bitcoin or Ethereum, and Bitcoin hit $15,000 or so five years ago, before then losing 75% of its “value” in the next crash, then again soaring during the COVID mania to $60,000… getting cut in half when the meme stock mania collapsed in early 2021, then recovering back to $60,000 again late last year, and now it has lost 75% of its “value” again.
To me, the “value” of these major cryptocurrencies hasn’t fundamentally changed in the nine years that I’ve owned some Ethereum and some Bitcoin — they’re still cool, they still have potential to rewrite the way we move information and money around the world, and they’re still not practically useful for anything. They are founded in idealism about a democratized future for money and data, for which I have a lot of sympathy, and then they’re wrapped in mystery and too expensive and complex to be an easy replacement for centralized or corporate solutions that are in wide use, and they’re traded by con men and speculators who are trying to profit from that idealism.
Warren Buffett is on the hyper-curmudgeonly end of this, of course, he’s never the early adopter, but I thought his reaction this year was interesting. He was asked about Bitcoin once again at the Annual Meeting, and he summed up the fundamental nature of it pretty nicely:
“Whether it goes up or down in the next year, or five or 10 years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything. It’s got a magic to it, and people have attached magic to lots of things….
“… if you told me you own all of the bitcoin in the world and you offered it to me for $25, I wouldn’t take it because what would I do with it? I’d have to sell it back to you one way or another. It isn’t going to do anything….
“Assets, to have value, have to deliver something to somebody. And there’s only one currency that’s accepted. You can come up with all kinds of things — we can put up Berkshire coins — but in the end… there’s no reason in the world why the United States government … is going to let Berkshire money replace theirs.”
He’s probably more curmudgeonly than I am, but, after a decade or so, I am honestly surprised that we’ve seen so little real-world progress in terms of cryptocurrency projects doing anything… or, at least, doing anything other than providing a way for people to bet on cryptocurrencies and try to get rich from trading or creating them.
There remains a hope of this “Web 3.0” that’s decentralized and gives power and agency back to individuals, fueled by blockchain… but so far, it mostly seems to be solutions to things that most people don’t really consider to be big enough problems that they’re willing to give up on the convenience and quality of Google search or Spotify music or YouTube whatever other Web 2.0 leader is the target of any given blockchain/crypto-based Web 3.0 project. Maybe someday.
Travis, this post was great, deserving of its own Bonus Edition to a Friday File. I’m one of the original architects of Web 2.0. I am deeply involveed in cloud, edge and robotics. In other words, I’ve been on defining and mainstreaming cutting edge tech. I am also a member here for over a decade, LOL. Price speculation and greed aside:
1) Bitcoin is idealized medium of exchange. It has low friction. In a world where cooperation between nations changes on a whim, BTC offers an alternative. Gold is inferior here.
2) BTC is easy to own. Governments will rise and fall and currencies destabilize (this is basic monetary physics), BTC, self custody means you own it. The question thats open is how it will fare against quantum computing. Gold is inferior here.
3) BTC acts a store of value – this is yet to be proven clearly. We have to look at adoption and ideally see realized volatility fall over time. It has been doing just that, although its hard to appreciate it at the moment. Clearly its too early to make that call. Gold has its benefits but also challenges here.
4) ETH is a truly decentralized technology platform (the second best by a long distance is Cardano, but there has been no application dev of significance on it), on which applications can be built. It’s has more broad uses potential, and is more agile and innovative. Long term, I do think ETH has more value Vs the current crop of megacap tech companies (I work at one of them) – note none return capital to their investors in dividends in any meaningful way.
5) It’s too early to make the call on ETH especially given the “circular world” of ETH and its various projects that ultimately has really taken off because of cheap money. We need to do if growth occurs in that ecosystem (not price growth) now that the spigot has been turned off.
6) I think the “slow adoption” perspective for BTC maybe premature. Adoption has actually been growing steadilty, price growth has gotten very ahead of it creating a perspective of slowness.
None of this means either will make you money for a multitude of reasons that I’d rather not get into in a comment, but if you would like I’m open to chatting someday. BTC does seem to abhor attempts to horde it by speculators and investors – it finds a way to periodically shake them out. Case in point, the number of wallets holding large number of BTC keeps dropping, and the number of smaller wallets owning BTC keeps increasing. This represents true decentralization and has been occuring since inception. I dont know why, but few have been able to pull of BTC hoarding.
Disclosure – I own a little bit of BTC and a tiny bit of ETH. I am not a libertarian nor do I have strong feelings on either.
Regarding Buffet, he has not been a fan of gold for largely similar reasons.
Really good points, thanks … I think the recent shakeup highlights the extent to which any system is “faith based” — currencies and platforms thrive over time because of user confidence, and that trust and confidence, especially for those who are more casually involved, has been shaken a bunch of times for bitcoin and the other crypto tokens as wild speculation has turned them into primarily trading vehicles (and made any “real” use very much secondary). Seems like you’re saying that this washout of price speculation might make “real” use of cryptos finally take center stage, that’s an interesting thought. I hope so.
Gold is certainly a horrible medium of exchange, expensive to store and inconvenient to transfer… but it has been used in most cultures for so long, a couple thousand years in some cases, that there is a high degree of confidence and trust in some sort of “value” there. Plus it’s shiny 🙂
Thanks for the feedback, and for being a longtime member here! We’ve got an interesting future coming, I expect.
Travis and Dutta: This is an useful, and very timely, discussion of crypto. Thank you.
I’m curious to know what you think of The Graph (GRT) a coin that appears to be based on ostensibly useful application. Thanks!
I don’t have an opinion on GRT but in general have not had the time to sift through the fundamentals of the alt coins. I would put MATIC and ADA as interesting projects worth looking at.
Yes, gold has been a very proven store of value for sure for millenia. It will end once we get automated asteroid mining, but that is at least 25 years away.
I love your work, I use my own developed algos for investing and trading but you provide a great shortlist of stocks in your Friday file, lock box and personal portfolio. When your nibbles coincide with one if my accumalation algo buys it makes me smile.
IMO, All cryptos are Ponzie schemes. They have no inherent value. The don’t produce anything. You don’ get paid interest or a dividend. They have no book value. When they go bankrupt there are no assets to sell and distribute to shareholders. They survive on hype, illusion and FOMO. They thrive on the bigger fool theory. No different then the dot com bubble. Hundreds of faux tech companies were created out of nothing, hyped to create a buying frenzy, issued more shares to keep the scam going, paid themselves rich salaries, then disappeared leaving the retail share holders with a total loss of investment. All crapto holders will end up being the bigger fool. There are hundreds of good places to invest wisely. Do your DD and use some common sense or you will be left with is no cents.
I’ve always thought there wasn’t much point to owning crypto unless you enjoy being quietly robbed in your sleep. However, I’m absolutely amazed by how much has been written about it since its inception, considering the roughly $2 Trillion give or take that is tied up in it any given day is only about 2% of the world stock markets which often generate much more excitement and, of course, trading on any given day. And if that seems boring, try the oil market, which is even bigger and can be more volatile than the stock market.
For what it’s worth, the simplest explanation I have heard for, specifically Ethereum, is that it monetizes computing power. Think of a lawyer or accountant, we pay them to input data on a spreadsheet. Yes we use their knowledge but imagine a platform where all best options are provided once one inputs the next line item. I believe it is the basis for smart contracts. For me I can’t help but feel like there is a very strong long term opportunity…still not buying anything.
$FIS is a pretty solid bet at this price. Use to work for a company they purchased a few years ago. Was very well ran with some smart people leading. Extremely boring business to most people but they are more technologically advanced than it may seem and as capable (if not more) than the trendy processors such as Square. I’d be shocked if my purchase is in the red this time next year. FOUR is my favorite of the bunch but is not at a discount like FIS. I’d recommend staying away from Fiserv.
Boring can be great! Thanks.
In my early investment education, I felt compelled to read Buffet’s mentor Benjamin Graham on value investing. But *all* Buffet has managed to do in recent decades is to index the S&P beating it ever so slightly compared to growth stocks – down for the count now, but the key to winning this (Tony Seba’s) decade of disruption. . His top stocks are basically risk-averse ‘commodities’ (Banks, Beverages, etc. now TSM) steady but unspectacular long-term opportunity/growth. But he’s got his Legacy to protect, right? 🙂 As Apple’s product sales have flattened, yielding to their services revenue, Steve Jobs (the only other visionary other than Bezos and Musk) must be rolling over in his grave.