King of Capital

I just finished reading King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone by David Carey and John E. Morris. I bought the book with What It Takes: Lessons in the Pursuit of Excellence by Stephen A. Schwarzman. I figured I would get a full picture but aside from covering the history of Blackstone they are different books. I started reading What It Takes first, which is newer, then in parallel I jumped to King of Capital just to see if the story matches and I ended up finishing it first. I will eventually finish What It Takes.

King of Capital mostly focuses on private equity firm Blackstone but it touches all the big main PE players. From KKR, Apollo, TPG and others. Their stories are interconnected. The book is part history on private equity since it covers a timeline that precedes the foundation of Blackstone. But the book is mostly an encyclopedia on deals. It covers deals, deals, and more deals. If you are detail oriented, you won’t be disappointed. It provides deal value, closing dates, equity invested, profits and rate of returns, and the strategic plan behind individual investments, and accounts how they played out over time. Both authors are former writers with and they have their homework.

King of Capital was published in 2012, which started to touch on the post-financial crash recovery. I feel another chapter, or even a follow up book, could be added to cover the massive growth of PE as an asset class since publication. The industry has exploded. When the book was published, Blackstone had about $166 billion in asset under management. Today it has $618 billion and growing. That’s a 272% growth in AUM in 9 years. The funds they managed are also getting bigger. They can get $20b in commitment for a new fund by just picking up the phone. That’s a lot of money to put to work. I have to point out that the last sentence of the book is “A history of private equity in 2020 thus will have many new story threads and a new cast of characters.”

Notably absent from the book is Brookfield Asset Management (BAM). I bring BAM up because I’m a big fan of the firm and it’s a major PE player. It had $150b in AUM when the book was published. But I can understand why the book skipped over them. Although BAM has a massive presence in the US, it’s Canadian and has a low profile. The book covers the stories of KKR and other traditional PE firms. Their story is linear. The BAM story is a whole book on its own. It didn’t start as a PE firm. It was a massive conglomerate of assets that transformed itself into an asset management firm over the years under Bruce Flatt. I’m sure a follow up chapter would cover BAM because today it has over $600 billion in AUM.

I could write a whole post on the topic of PE. PE needs a PR firm. It has a bad rep. “Cost cutter, slash and burn, saddling companies with debt and dumping them, vulture capitalist etc…” I think the media is partly responsible for that characterization. Has PE firms done some unpopular things? Of course. Is it all bad. No. The true is that it has done more good than bad. But of course only hear about the bad deals. Despite the persistence of the bogeyman, strip-it-and-flip-it image, it isn’t borne out by the facts. Studies have been done on how private equity and as an industry does not harm the economy. Most of the standard knocks (e.g. job killer) have been debunked. A good portion of their profits derive from buying and selling and leveraging up to accentuate their gains. But that’s no sin. Also the notion that PE firms leave companies in tatters doesn’t stand to reason. How could a form of investment that relies on selling companies for a profit survive if it systematically damaged the companies it owned? Why would sophisticated buyers acquire companies from private equity if they were known to strip them bare? It makes no sense. 

I was an intern early in my career at a PE fund a while back. PE’s main job is to provide capital. That capital fuels the growth of businesses and communities. That money at work is institution money such as pension plans, in other words retirees’ assets.

Conclusion: Read the book if you are interested in a detailed history of PE and the rise of Blackstone.

‘Quality Shareholders’ Review

Coming out on November 3, 2020

I was approached by Columbia University Press to write a galley review for Professor Lawrence Cunningham’s latest work: Quality Shareholders: How the Best Managers Attract and Keep Them. The book is expected to be released on November 3, 2020.

Professor Lawrence Cunningham (@CunninghamProf) is acclaimed for his work on Warren Buffett and Berkshire Hathaway. If you want to better understand Buffett and the Berkshire organization, he’s the guy. His most famous work is The Essays of Warren Buffett: Lessons for Corporate America, currently in its 5th edition, is a must for investors. Professor Cunningham is also on the board of Constellation Software, (CSU.TO), a company that I had the misfortune to watch its stock rise for years without ever investing.

I was approached to write a review for the blog. So here it is.

In his new book, Quality Shareholders, Professor Cunningham touched on a concept that I had in mind for a long time – that certain shareholders, Quality Shareholders (QSs), are more beneficial to have than others. The idea that there is a Quality Shareholder (QS) class is what this book is about. The concept in my head wasn’t as articulate. It needed a little polishing. I like how Professor Cunningham lays it out. The book brought clarity and structure to the concept. QSs are defined as shareholders who buy large stakes and hold for long periods. They see themselves as part owners of a business, understand their businesses, and focus on long-term results, not short-term market prices.

Continue reading “‘Quality Shareholders’ Review”

Book: Daring to Succeed: How Alain Bouchard Built the Couche-Tard & Circle K Convenience Store Empire

The following business biography delivers: Daring to Succeed: How Alain Bouchard Built the Couche-Tard & Circle K Convenience Store Empire. It’s business biography that delivers,a lot on business, management, culture, M&A, and leadership. It’s an easy read, not dry, and contains tons of real life lessons. It’s better than most of the stuff I read in business school.

It’s a great business book that’s under the radar. You probably never heard of Alain Bouchard or Alimentation Couche-Tard (ATD). But convenience store chain Circle-K probably rings the bell. Alain Bouchard and ATD are the low profile type, French Canadian, and convenience stores are a boring business. Combined all that together and it doesn’t vibrate “best seller” list. But if you are looking for quality content, then you won’t be disappointed.

Circle-K is the global leader in convenience store. But how did 4 guys (Alain + 3 partners) from Montreal, Québec, achieved that kind of success? And who dreams of becoming a convenience store leader?

What kind of success you asked? Well since the IPO in 1984 Couched-Tard is up 875x. It’s up more than 10x in the last ten years. It’s closing in $60b in sales (well pre-covid). Not bad for a boring business.

Summary: Great book if you are looking to further your business/investment knowledge for the slow summer days.

If I have the time I will try to write notes to share.

Dear Shareholder Webinar with Lawrence A. Cunningham – Notes

Dear Shareholder

If you follow Warren Buffett then Lawrence A. Cunningham (@CunninghamProf) doesn’t need an introduction. Lawrence is a lawyer, a professor at GW, a corporate director, and a Buffettphile. Mr. Cunningham is better known for documenting Warren Buffett and Berkshire Hathaway for decades. He’s the author of many books. His most famous work is the The Essays of Warren Buffett: Lessons for Corporate America. Investors that want to learn more about Buffett and BRK has turned to Professor Cunningham’s work.

Last night I participated to his virtual book launch of his new book:  Dear Shareholder: The best executive letters from Warren Buffett, Prem Watsa and other great CEOs (pun on Dear Chairman, another great book, he asked Jeff Gramm for permission). Prof. Cunningham also provided slides to follow allow.

Dear Shareholder Talk Slide Deck April 14 2020 (feel free to share)

I’m looking forward to reading the book. Investors, entrepreneurs, and business leaders could learn from some of the best shareholder letters written. The book is separated in 16 chapters. Each chapter represents a company. Most letters have one author, but companies like Leucadia-Jefferies and Markel Corporations have two. This is truly some of the best people in business, separated in three categories: 1) Classic (Buffett, Goizuieta +), 2) Vintage (90s), and 3) Contemporary (SEACOR, Google, Constellation Software +). The only ones I never heard of on the list were Charles Fabrikant from SEACOR, Brett Roberts from Credit Acceptance Corp, and Robert Keane from Cimpress N.V. I will have to look them up.

Dear Shareholders authors

Buffett is the dean of shareholder letters. They all learned the art from Buffett. They all tried to emulate him. But they have their own style, own personality, and all try to bring something different to the table. These guys (and two ladies) are great writers. There is something special about this group of authors. They focus on discipline, capital allocation, conservatism, being rational and the long-term. What makes a great shareholder letter? They treat shareholders as partners. They provide a comprehensive clear report.

This book is great business writing pulled together into a book. I’m waiting for my copy and will be great references on the book shelve.

Thank you Professor Cunningham for your work and being generous with your time.

The Man Who Solved the Market – Jim Simons

A new book about the most successful money maker in the history of modern finance is out and it’s not about Warren Buffett. It’s about a guy named Jim Simons and his firm Renaissance Technologies. He started investing in his 40s and didn’t anything about the topic.

The book The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution by Gregory Zuckerman is released today. It’s one of those books that is highly anticipated. You can read and except from The Wall Street Journal here.

The book is a coup because Simons shuns the limelight and rarely gives interviews. It’s great that Gregory Zuckerman succeeded in getting Jim to talk. Rumors about his performance has swirl around for years but the real numbers are much higher than anyone anticipated.

Today, Mr. Simons is considered the most successful money maker in the history of modern finance. Since 1988, his flagship Medallion fund has generated average annual returns of 66% before charging hefty investor fees—39% after fees—racking up trading gains of more than $100 billion. No one in the investment world comes close. Warren Buffett, George Soros, Peter Lynch, Steve Cohen, and Ray Dalio all fall short.

Simons ranked second on Institutional Investor’s list of top-earning hedge fund managers in the world last year, and first the year before and the year before that, despite the fact that he  retired in 2010.

For the occasion, I updated my links about Jim Simons and Renaissance Technologies in the resource section. I plan to read the book and post my notes when I get to it.

Jim Simons (Renaissance Technologies Corp.)

Keeping Your Dividend Edge

Keeping Your Dividend Edge
Available here.

Before I get to the book I want to share a little story. Something positive actually happened on Twitter. It turns out that Twitter doesn’t have to be carnage pit filled with trolls. There’s a nice guy on it and his name is Todd Wenning (@ToddWenning).

A while back I read Harriman’s New Book of Investing Rules. The book is 500 pages of wisdom by some great investors.  There are some well-known names and less familiar names like Todd. The investors profiled range in style and strategies. One of the articles in the book was written by Todd Wenning (@ToddWenning). I really enjoyed Todd’s piece and I reached out to him on Twitter to let him know. 

ToddWenning Book Twitter

Todd was a man of his tweet. I did received his book, Keeping Your Dividend Edge, and I was more than happy to read it. See, something positive came out of Twitter.

I like Todd’s philosophy on investing and dividends. His thinking really resonated with me. Invest like you are buying a business. Study the business, study the fundamentals, figure out the competitive advantage, and can you make a reasonable assumption that the company will be able to maintain its success for a decade or more to come. Focus on the long-term and get paid in growing dividends and capital appreciation.

Todd’s book is about dividend investing. It’s a short read with approximately 120 pages. There’s nothing wrong with a small read. It’s actually refreshing. The book doesn’t waste your time. It’s delivers on content. It goes straight to the point. It’s concise and clear. Just the plain blue cover signals no b.s., no hype.

You will become a better investor if you read this book and actually apply it’s principles. You will. Todd didn’t reinvent the wheel here. Dividend investing has been a staple strategy. But what Todd did is to remind us of the art of dividend investing.

I feel that dividend investing is a lost art. Or investing for income in general. Most income investors are doing it wrong. It’s like health. Everybody wants to be fit and healthy but they are doing it wrong by buying into trends and taking short-cuts. I feel it’s the same with income/dividend investing. People are approaching it the wrong way.

Investors are turned off by blue chips dividend payers because of the low ~2% yield so they chase high-yield stocks. We live in a world where investors are buying bonds for capital gains. The world has turned upside down. The most probable cause is the 10-year plus of ultra low interest rates is distorting financial markets. It’s been a tough stretch for savers in need of yield. Another cause is buybacks as the preferred way to return money to investors.

You can’t just invest for the dividend. If you don’t do your homework it could led to trouble. Dividends should be part of a grander strategy. A good strategy should include dividends as a part of total performance. It’s a key component of long-term share price movements. You can’t guarantee a dividend because a company doesn’t have to pay one, but with the right analysis you can have pretty good idea if they will pay one and raise it over time. If you aim for let’s say a conservative 6% to 7% annual return (S&P Index has returned 10%+ in the last ten years). With a 3% yield you have accomplished half your returns. One aspect of dividends I like is that it’s a tangible returns. It’s a real return. It’s real cash that you receive. And I like cash because it allows me to allocate more capital.

Dividend investing is about patience. Focus on the long-term. Focus on the business. Focus on the fundamentals. Focus on the cash flow because that’s where dividends are from. Dividends need to come from cash produced by the company (not accounting earnings).

Dividends are not a magic pill. A company can’t guarantee a dividend because unlike a bond, there’s no obligation to pay. Dividends can be cut. We have seen blue chips like GE, Pfizer, and more recently Vodafone slash their dividends. A company might take on too much debt and get in trouble. The share price of the company you invested in can languish, or worse disappear. Taxes could be an issue if not handle properly. Todd’s book has a whole chapter on avoiding dividend cuts. Usually the main reason is the lack of sustainable free cash flow.  If a company can’t covert a dividend with free cash flow, they need to fund the payouts with cash on hand, debt, or asset sales. Expect trouble if that happens.

The holy-grail of dividend investing success is the compounding effect. The combination of the increased in value of your stock (capital gain), dividends, and growing dividends reinvested that creates bigger dividends, that gets reinvested can turn your investment into a snowball what creates wealth.

In case it wasn’t clear by now Todd makes the case for smart dividend investing. In case you need to read it again, if you want success in the stock market you need a long-term patient approach. Dividends helps you focus on the business. It helps you focus on the fundamentals of the business. It helps you forget about the daily gyrations of the stock market. I have no clue what the stock market is going to do, so it would be more profitable to forget it and concentrate on trying to find the right stock to buy. Dividends also help you take hit. If you have an investment that is down 15% (because it happens) and the business is sound, you have your dividends coming in and an opportunity to buy the business 15% cheaper.

Long-term thinking, patience, and persistence are qualities which should pertain to investors. Dividends delivers on these fronts. Keeping Your Dividend Edge deserved a place on your investing book shelf.



The Extra 2%: How Wall Street Strategies Took a Major League Baseball Team from Worst to First

The Extra 2%I enjoyed reading The Extra 2%: How Wall Street Strategies Took a Major League Baseball Team from Worst to First by financial journalist and sportswriter Jonah Keri (@jonahkeri)Keri has a podcast and is also the author of a book on the Expos. He’s active on Twitter and a great guy to follow.

The Extra 2%  is a mix of many interests of mine like sports, finance, and business. With the NHL and the NBA finished for the year, it’s time for summer sports and summer reading. Baseball holds a special place. Maybe it’s because I played it when I was a kid. Maybe it’s because of the 1994 Expos and their possible come back. Or maybe I played too much Ken Griffey jr. the video game. Or maybe it’s because baseball is such a different sport from all the other major sports. There’s no clock; you go home after 27 outs. Or the real reason is probably because it’s so goddamn much fun to hit a ball with a bat.

The book documents the turnaround of the Tampa Bay Rays by three financial wiz kids from possibly one of the worst run franchises to a team that’s making the mighty Red Sox and Yankees sweat. And that’s with a tiny fraction of their budget. If the Rays considers spending $8 million on a closer, it’s a huge decision with many implications. If the Red Sox or Yankees spend $8m on a closer and it doesn’t work out, it’s a rounding error.

It’s the classic David vs Goliath story. The only difference in this story is that the large majority of fans are cheering for the two Goliaths. Since the Rays can’t compete on financial ground, they need to find another way to win games. They have to find an edge else where. They have to do things differently. They have to be creative. This is a good follow up book on Michael Lewis’ Moneyball. It’s a similar play. Both the A’s and the Rays are a small payroll team that was willing to discard old baseball wisdom. If you dare going against 100 years of conventional wisdom, you better make sure you are right.

The book is a great case study. Stuart Sternberg, Matt Silverman and Andrew Friedman accomplished so much in so little time. They turned a perennial loser into a contender. They are lessons to learned. The title, the extra 2%, reminds of something Anthony Robbins said (I think it was him). He said something like if you only try to improve 1%, it can make a huge difference in the long run. You might not noticed it at first, but that 1% will add up. Just think of what happened to a golf ball when it you hit it a couple degrees off. It matters.

In a way, the book could have been published now. Stuart Sternberg is still the owner. The Rays are still fighting the mighty Red Sox and Yankees. The Rays are still hustling for a division title. They are still a low budget team. They still don’t have anybody watching them. And they still don’t have stadium deal. Also I should mention that Mark Cuban, owner of the Dallas Mavericks, wrote the forewords.

I don’t really care about the Rays but I pay attention to them from a distance, that is their stadium saga. Rumors in Montreal is that if the Rays can’t get a stadium, Montreal is waiting in the wings to welcome them. Montreal first need to built a stadium and there’s a team of investors working on that. Despite the success of the Rays, Tropicana Field is empty. Tropicana Field is awful and the Rays have a lease until 2027. Is Montreal going to wait another 9 years for a team?

I don’t blame the fans in Tampa or surround areas. I think it’s a Florida problem in general. Most major sports franchise in Florida are not major hits. It’s a college state (and Nascar). Floridians love their college sports. People in Tampa are baseball fans, but they are Cubs fan, Red Sox fans, and Yankees fans. Most Floridians are from there and cheers for their former home club.

To conclude, it would be interest to hear an update from Jonah on the Tampa Bay situation.

Tampa Bays Rays Season results
Regular season results. Source Baseball-Reference.

Metro 2033

Metro 2033I read the book Metro 2033 by Russian author Dmitry Glukhovsky. For a change, I read of piece of fiction. Metro is an international best-seller and deservedly so.  Metro 2033 was originally published online in Russian for free because it was rejected by the conventional publishers. The book became a hit and an English version of Metro 2033 with its sequels Metro 2034 and Metro 2035 are available. The books were also adopted in a video game format, Metro Redux (includes both 2033 and 2034), and Metro Exodus just came out. The games are first-person shooter survival horror but I haven’t had a chance to tried it out and they do look good. Point your weapon and blow up stuff. Kotaku has a review of the Exodus here. There’s also discussion of a TV series or a movie. I hope a TV series format is adopted because there’s just so much stuff to cover that I don’t think a 2 hour movie would do justice. But again look what at what they did with The Lord of Rings trilogy or Harry Potter.

About Metro

Metro 2033 is based in the Moscow Metro in a not so far future (2033) after the nuclear weapons blew up the world. I didn’t know this, but the Moscow metro system is one of the world’s largest (196 stations) and it’s also used has a nuclear bomb shelter. Moscow is ready for nuclear war. Here’s a map of the Moscow Metro:

Moscow Metro map.png
Moscow Metro has 196 stations and doubles as a nuclear bunker.

They also have another “secret” metro, Metro-2, that supposedly runs parallel to public one. Apparently it’s only for special government function. The Russian government has neither denied or confirmed its existence.

There’s a lot in this book. A lot. Artyom, the protagonist, has a mission that caries him across the metro. Each station has its own story. Artyom has various encounters with communists, neo-nazis, cannibals, cultists, bandits among others. All these people are leaving underground and they don’t really like each other. The book is very ambitious and quite an achievement for a first novel. I was intrigued to learn about the author. It would be fun to have a conversation with the author to learn more about his aspiration for such a book. Here are a couple interviews with Dmitry Glukhovsky:

In some interview he mentioned the video games Fallout having an influence on him. I played the originals (Fallout 1 & 2) when I was a kid and absolutely loved them. There are some difference however. Fallout presents the post nuclear apocalypse world as rough, tough, but playful and cheerful. Metro presents the post nuclear as rough, tough, gritty and dark. One version is Americanized and the other is Russianized. In Fallout exploring the world is the fun part. In Metro you don’t leave you station. In Fallout, a mutant can become your friend. In Metro you avoid monsters. Fallout is for a younger audience. Metro is for a more mature audience.

Metro series

The post-apocalyptic theme might seem over-exploited.  It’s really in vogue right now with all the zombie shows/movies/games coming out. Metro is not another run of the mill product. Dmitry did not simplifying the theme and the tone of his work is not water down. This is not a series for idiots. It’s complex. It’s high-quality. I believe that by not trying to be a mass-market product, by not trying to be everything for everyone, Dmitry has built something extremely solid that became has became a massive international best-seller.

The success also led to the creation of the Metro universe. There are over 100 books published in the world of Metro written by authors all over the world (*link in Russian).

This is a good franchise. My reading pile is growing and I will try to get them the rest of them. I don’t know when but I will.

Metro 2033 artwork

Red Notice

Red Notice.jpgI have a pile of things I need to read and I have a pile of things I want to read. And there’s Red Notice by Bill Browder which was on neither pile. I picked up for $20 at the book store just because it looked good. I actually heard about Bill Browder a couple years ago from his frequent TV appearances. He also had a documentary on Netflix. Here’s a little known fact: Bill Browder is the grandson of the head of the American Communist Party who ran for President a couple times.

Bill Browder has a story and it’s one hell of a story. This book has two parts. The first part, my favorite, is about his early day investments after the breakup of the Soviet-Union. Browder was where nobody else wanted to invest. This mean he bought stuff for ultra-cheap. He would invest in companies at 0.5x P/E and such. Assets where absolutely mispriced. The gap between price and value was extremely large. Capitalism wasn’t a well understood concept and they were basically just giving stuff away for free. Nobody knew how to value anything except for vodka and cigarettes. You could buy companies at a tiny fraction of its oil reserve. The book a couple examples of his investments and it’s fascinating. I kind of wish he made another book only about his investment in Eastern Europe/Russia after assets where privatized.

The second part of the book is the main reason why it was written. It’s the part where Browder goes to war against Putin. Browder was deported from Russia after trying to expose corruption in the country. He hired a lawyer named Sergei Magnitsky to be part of the team to help him out. Then in 2008 Sergei Magnitsky uncovered a massive tax fraud. He found evidence that a group of well-connected Russian officials had stolen a whopping $230m. He was arrested and tortured to make him withdraw his testimony. He didn’t. His conditions grew critical and he died. Then Browder went on a crusade to seek justice. It looked impossible and it wasn’t easy. The Russian says that Browder is the real criminal and has commited fraud. Russian issued a “Red Notice”, like the title, which refers to the extradition request served by Russia on Interpol, demanding Browder’s arrest. It was denied.

Browder is behind the The Magnitsky Act, a law named after Sergei Magnitsky, which was signed into law in 2012 by President Barack Obama. The law is intended to punish Russian officials responsible for the death of Russian lawyer Sergei Magnitsky in a Moscow prison in 2009. The bill received bipartisan support. At the moment, I believe the law has been expanded to cover the globe, not just human right abuse in Russia.

In the book, Browder has an interesting theory about Putin. At first Browder was a Putin supporter. Browder was an activist investor. He would go after corruption and exposed crook at companies and it worked…for a while until it didn’t it. Doing what he was doing as a foreigner it was surprising that nobody killed him. People die in Russia for much less. Browder believed he was protected by Putin at first. When Putin was first elected, he wasn’t the Putin of today. Putin didn’t have all the power. The Russian oligarch did. And Browder was going after the oligarch. Putin and Browder’s interest were aligned. Then the oligarch folded to Putin because he started jailing them and Putin gain the power. That’s when Putin and Browder weren’t working together anymore but it conflicted. So Putin tried to get rid of Browder and it got messy.

“This book reads like a thriller, but it’s a true, important, and inspiring real story. Bill Browder is an amazing moral crusader, and his book is a must-read for anyone who seeks to understand Russia, Putin, or the challenges of doing business in the world today.”Walter Isaacson, author of Steve Jobs and The Innovators

How to Evaluate Businesses

“So how do you really understand and gain that great insight? Pick one business. Any business. And truly understand it. I tell my interns to work through this exercise – imagine a distant relative passes away and you find out that you have inherited 100% of a business they owned. What are you going to do about it? That is the mentality to take when looking at any business. I strongly encourage you to start and understand one business, inside out. That is better than any training possible. It does not have to be a great business, it could be any business. You need to be able to get a feel for how you would do as a 100% owner. If you can do that, you will have a tremendous leg up against the competition. Most people don’t take that first concept correctly and it is quite sad. People view it as a piece of paper and just trade because it is easy to trade. But if it was a business you inherited, you would not be trading. You would really seek out knowledge on how it should be run, how it works. If you start with that, you will eventually know how much that business is worth.” -Li Lu

Li Lu is the only guy that manages Charlie Munger’s money. And he has an incredible story about his up bringing. Twenty-one years ago, Li Lu was a student leader of the Tiananmen Square protests. Now a hedge-fund manager possibly one of the successor to he is in line to become a successor to Warren Buffett at Berkshire Hathaway.

His book seems rare and hard to find. There’s a copy on Amazon: Moving the Mountain. He’s expensive so it’s probably one of these rare books that you might find by accident somewhere. Li Lu also wrote the foreword to the Chinese version of Poor Charlie’s Almanack.