Friday, September 23, 2016

Bill Fleckenstein and Horseman Capital Speaks

One of the big fish that I really like is Bill Fleckenstein. Not only does he have a very unique and cool name, but I can follow his logic well and he has the (rare) ability to think outside of calendar year / quarterly / monthly performances. Because his main aim is to make money and not to lose money in the long run and he doesn't care about benchmark performances, he keeps things real and he plays it cool. I'd like to be that way as well.

The biggest mistake that the casual retail investor makes is trying to hit an annual target for investment returns. Few people would come out and say it, but investment returns are rarely as stable and smooth as people would have you believe. In fact, returns are usually lumpy. You don't get 8% a year, every year. The ability to think outside of those fixed time periods will help you take take advantage of one of the few things that the retail investor has an edge over professionals.

Do we get paid to sit in an office and read financial reports and news all day?
Do we have admin staff to do mind numbing data entry and to format data for us?
Do we have fancy computer algorithms to crunch data for us?

The only true advantage that we have is the lack of career risk. As our own portfolio managers, we have zero career risk because we don't need to fire ourselves, ever. Performed below benchmark over the last year? Oh well.

Putting pressure on yourself to perform well within arbitrary timeframes is really unnecessary and very unproductive.

Bill manages his fund without the usual constraints of investment managers and I like that he's aware, but unmoved by all the noise in the markets. Returns are nice and all, but REALIZED RETURNS is the only thing that matters at the end of the day.

Anyway, this is a nice interview where Bill just crushes it.

Moving on though, the infamous Horseman Capital speaks about "the best short in the world" (in their opinion) which is unsurprisingly Japanese banks. With negative interest rates, NIM is compressed and that is just killing off the main income for banks. Negative interest rates also promotes cash hoarding, and it doesn't take a genius to add 1+1 to figure out that plenty of Japanese are shunning banks and just keeping cold hard cash in personal safes at home. Throw in the declining population in certain areas and you have the perfect storm - less customers with less deposits with less interest. Now on top of that, add in a protected, high-cost, foreigner-unfriendly, locally focused businesses and you have structural problems with the economy that can't organically "grow" itself back to health. I wouldn't be surprised if NPLs start to go up when everything else starts going south.

Policy-wise, Japan is way too deep down the rabbit hole. They are pretty much exercising their nuclear options already, and the last thing to eventually come will be the devaluation of the yen. (but, I am expecting short-term appreciation because of the carry trade)

We're beyond the point of "if". It's only a matter of "when".

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