A busy, busy month

By | 01/01/2012

Happy new year everybody !

Yes, it has been long since I wrote.

During this time, a lot has happened.

These lines are written from a small neighborhood in the city of Montevideo in Uruguay. I have been in Uruguay for the last month (since December 7th). It was a long and joyful visit, so nice to feel the warm summer in the middle of the winter. And yes, everybody in S. America are standing on their head.

Tomorrow we are flying back to Israel.

I also started a MBA degree in IDC (Herzlia's Inter-Disciplinary Center), it is very interesting and you get to meet lots of interesting people, that you'd only dream to meet in this MBA program.


Since I last wrote, my predictions about ETM had materialized. ETM had refinanced their debt at an average of about 7.6%, the highest limit of my estimates. The low blow was a new bonds issue it sold with 10.5% yield, that is, according to Steve Fisher, ETMs' CEO, "NC4". NC4 means non-callable for 4 years. Yes, we are stuck with these $220 million at 10.5% for 4 years. The rest of the debt is a bank debt at 5.5%. I am not so happy with these terms, and a bit angry that ETM did not wait till June 30th 2012 to save us a few millions, but according to Steve these were the best they could do back then, as they were very afraid from a credit crunch.

As they say – "You borrow when you can, not when you need", or in Steve's words "it all boils down to timing".

The company is still cheap, though, so I continue to hold.

Uruguay, Argentina, Coke and McDonalds

During my stay here, I also visited Buenos Aires in Argentina. Buenos Aires is Montevideo's bigger, wealthier brother.

Two things that simply amazed me are the number of McDonald's branches in every corner and the Coca-Cola exposure. It is like these two giants had taken over S. America. It is amazing ! Everywhere I look, everywhere, I can see a McDonalds branch and simply everywhere  I can see Coca-Cola.

You can see a greasy, fatty, shiny looking burger staring at you from EVERY bus station, every bus that goes by, billboards, etc. The branches are very clean and almost always have 2 floors. Every time I was around I could see that they are crowded. All the time ! It was the first time I've tried a little McCafe, and I liked it. My Uruguayan girl claims that burgers in Uruguay taste better in S. America – and they actually are.

In Buenos Aires, we could see from our hotel that was located in the middle of Nueve De Julio (the main street of B.A.), a huge branch of McDonalds. Not 100 meters from it there was another one. We were both puzzled, but they were both bustling and busy. In fact, in every corner, everywhere, we could see this yellow "M" calling us to feed our stomachs with beef.

No wonder that MCD produced an annual return of about 19% for 30 years since 1980. It is the most resilient stock I know, even 2008 did not budge it.

Coca-Cola is a bit more subtle. It is staring at you from Coca-Cola shaped glasses in restaurants, from chairs with Coca-Cola logo, from "Santa Claus" billboards (did you know that Coca-Cola shaped Santa Claus as we know it today?). In many places you see restaurants and Cafe's with a red sign, knowing that they serve Coca-Cola. On my way from Uruguay international airport, I could see many flags cheering the summer wind with Coca-Cola's logo on them, just across some flags of Pepsi. Take a look at Coca-Cola's annual review of 2010, at page 10. You can see that the Americas are the largest consumers of Coca-Cola per Capita, especially S. America and C. America (Mexico and Panama). What is very intriguing is the low penetration to India and China. Can you imagine what will happen to Coke if these huge countries will reach the per-capita consumption level of Thailand in the coming years?

Too bad Coke is at P/E of 17.5 (don't believe Yahoo). Just a year and a half ago, at mid-2010, it was trading for P/E of 12.4. 40% rise in 1.5 years, not bad.

During my stay here I also learned about "Guarana" – a Brazilian beverage that is produced by — AmBev or "Companhia de Bebidas das Américas". It is just everywhere. If you drink something in S. America, most likely it was made by Coke, Pepsi, or Ambev. More about it in some other time.

2011 in retrospect

I have learned a great deal in 2011. I think I can say it was a key year in my life. I've made many changes in my life, in my way of thinking.

I've made quite a few investing mistakes, but fortunately for me, some of my long-lasting positions held quite beautifully and saved this year for me. I have learned a lot from these mistakes, but I think the best advice from this year is very simple: Do not make mistakes.

It sounds stupid right? No one makes mistakes deliberately. Correct. But I want you to look at it the other way around. This year was OK for me, although I made some mistakes. It turns out that you do not need terrific ideas to make it in the investment world. You just need not to make mistakes. All the other things will follow. It is a little similar to what Buffett had said in the past – "Rule #1 – Never lose money. Rule #2 – Never forget rule #1".

I did not have any brilliant idea this year in the form of a stock skyrocketing 500%. I really didn't. All my best performing stocks were really boring ones, Intel, Wal-Mart, Ramy Levy. Many of them just did 20%.  I had some bad mistakes though. If I count out 5 big mistakes I did, I could finish this year with a yield in the high teens or even low twenties. Today I look back and I can recognize these mistakes. The fact that I had quite a few is comforting, since it teaches me a lot, and it will be easier to avoid. It's a good thing that 2011 came to teach me a lesson early.


4 thoughts on “A busy, busy month

  1. אלונזו

    הי אסף,
    התחלתי לקרוא את הבלוג שלך לא מזמן ואני מאוד נהנה ממנו אז מגיע לך שאפו ענק.
    שאלה לגבי ETM אליה אני רואה שלא התיחסת תקופה מסוימת.
    לאחרונה המניה הגיעה לשער של 5$, הדוחות היו טובים למדי – הרווח התפעולי עלה במעט, והחברה החזירה עוד 10 מיליון $ חוב.
    מה שמטריד אותי הכי הרבה זה המכירות של בעלי עניין אפילו בשער של 5$.

    איך אתה רואה את התמחיר שלה כיום כהשקעה לטווח של חצי שנה לפחות

    האם אתה עדיין מחזיק בה? האם אתה עדיין מעריך אותה כשווה לפחות 12$ (אישית נראה לי מעט גבוה מדי)

  2. Assaf Nathan Post author

    היי אלונזו,
    לצערי אני לא מאוד בעניינים בחברה הזו. מכרתי אותה מזמן באיזור $7-$8 למניה ומאז הפסקתי לעקוב אחרי מה שקורה שם.
    בקשר למכירות בעלי עניין – אלו מכירות קטנות ולא משמעותיות שנועדו לכסות מיסים שהוטלו על הגראנטים של ה RSU ככה שזה ממש לא רלוונטי.
    דווקא לא אהבתי את הדוח האחרון ואני ממש שמח שאני לא מחזיק במניות.
    שמתי לעצמי דגל להסתכל עליה אם היא תרד מתחת ל $4, בינתיים היא לא זולה מספיק ולא מעניינת.

  3. אבי

    היי אסף יש לי כמה שאלות
    א. מה בדיוק הטריד אותך בדוח האחרון התנהלות ההנהלה ירידה ברווחים
    ב.כמי שעקב אחרי הניתוח שלך לפני כמה חודשים הבעת אופטימיות על חברה זו איך קורה שהכל התהפך
    ג.האם שהמניה תרד ב20% זה יתן לך מרווח ביטחון לחברה שאתה שמח לא להחזיק בה כעת

    תודה מראש אני מאוד נהנה מהבלוג שלך

  4. Assaf Nathan Post author

    היי אבי, החברה זולה, אבל היום יש חברות הרבה יותר זולות שמציגות הזדמנויות טובות יותר. יחסית לסיכון ולאיכות ההנהלה אני מעדיף לקבל פיצוי יפה לסיכון לפני שאשקיע בה שוב.


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