The 80/20 Investors Show

Today, we are joined by an international real estate investor and serial entrepreneur Noah Laith.

Noah is doing real estate deals in the Middle East, in South East Asia and in Europe with his favorite city Barcelona. In this episode,  Noah’s story is quite impressive and he offers some incredible tips to entrepreneurs on how to invest in real estate. We will get into the mind of Noah and how he selects the best deals for his investors and his company.

He will take us through on some of the indicators he learned over the many years as an investor that helped him avoid the crash of 2008 and how he profited from the opportunities that followed.

This was a 2018 special situations real estate investment play. Riereta Asset Management S.L., managed by Noah Laith, suggested a very interesting investment opportunity in the Barcelona real estate market, that promised high returns, quick payouts and a risk profile that is uncorrelated to stock market risk. Here is the overview provided by Riereta:

Invest in a special purpose vehicle that invests in 10 properties carefully selected by Riereta’s management team. This investment opportunity is a portfolio of apartments in Barcelona, spread over the following areas: El Gòtic, L´ Hospitalet de Llobregat, El Raval and Nou Barris. These are all areas that are experiencing high levels of growth.  Riereta’s goal is to buy, renovate and sell these 10 undervalued properties with 20% of its own capital, a diversified investor base and moderate outside finance from banks.

According to Riereta, the Barcelona property market grew significantly in 2016 and 2017. The city is considered one of the most strategic locations for real estate investments in Europe.

“Newly renovated small apartments and developments are in high demand, especially amongst local buyers and expats. Banks have resumed mortgage lending to local buyers, which has led to an expansion of the overall market.

A number of neighborhoods have seen a spike in rental and sales prices per sqm. In the center of Barcelona, real estate prices increased by about 22% per sqm between 2015 and 2017.

At present, the market rate (weighted average) for the areas in which these apartments are located is on average €3747 per sqm. Riereta expects a higher sales price and quick turnover of its ten properties due to the following:

Alternatively, Riereta has options for renting out the properties in this investment proposal, that should generate above market cap rates. Riereta plans to invest 20% of its own capital in this deal.”

* Estimates are only a guide and the duration may be longer. The 12 months duration commences on the purchase completion date, scheduled for February/March 2018.

** The net profit is shared as follows, the first 8% goes to the investor, the following 8% goes to

Riereta. All profit over 16% is split equally between the investor and Riereta.

Core Investment Risks

Contact Riereta

To get more information and a personal consultation contact Riereta directly:

Riereta Asset Management S.L.

Carrer de Balmes 129 BIS, 3-1

08008 Barcelona

+34 935 130 120

www.riereta.com

Disclaimer: No financial compensation; no position.

About Noah Laith:

Noah was born in Iraq but grew up in Amsterdam and today he speaks multiple languages

Home

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[Watch the YouTube Video Here]

The short answer is “No”! To be more specific: if markets allow it maybe later in 2019, but not now! In a recent interview, Mark Mobius was bullish on emerging markets and saw it as a perfect time to build a position in these high growth economies going into 2019. His arguments were as usual, structured, eloquent and to the point. For anyone who was listening, he made a lot of sense – including myself. Yet, he can’t be more wrong on his bullish call as of December 2018 and in this episode, I will be discussing why.

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Mobius is not alone with his bullish forecast for 2019. Morgan Stanley and a row of other emerging markets experts and brokers seem like an echo to Mobius bullish call forecasting outperformance for this asset class in 2019.  But how could they do differently? Isn’t it their job to promote their asset class – after all it pays their lofty fees? And what does “outperformance” mean anyway for an absolute return-oriented investor? -17% rather than -20% for the S&P 500? Not really soothing!

Emerging markets stocks and bonds suffer exponentially from wild capital flows that happen these days. Also, in times of crises, currencies such as the USD or the JPY are considered safe haven, whatever people like Peter Shiff might tell you. They are the most liquid and most secure markets. A strong JPY and USD are always bad for emerging markets which usually borrow heavily in these currencies. Furthermore, capital-rich countries such as Japan and Europe have been and will delay investments in these countries putting more pressure on debt-ridden local companies.

In the end, the market will break and a string of bankruptcy will put a final stamp on emerging markets investment opportunities. But that is a great opportunity for 80/20 investors and smart money alike! We just have to be more patient and wait for the extreme outliers in market developments and market valuations. The patience has always paid off especially in emerging markets investing.

Born August 17, 1936 (age 82)

For anyone who doesn’t know Mark Mobius, he is the emerging markets guru for over 30 years and my personal hero. He was on top of his game with emerging markets investing when others back in NYC or London were discussing Wall Street (the movie) or foresaw Japan as the great economic power that would rule the world. For me, he has always been the Warren Buffett of emerging markets. His value investing approach and his confident but mild manner have always made an impression on me. One could argue, he is one of the reasons, why I moved to Asia early on.

But the rise of index funds and ETFs, rapid market shifts as well as the globalization of financial markets, has had a toll on him and his firm. One could argue, that his approach to emerging markets investing has become somewhat “stale” or “old-fashioned”. He still follows the same academic approach to investing that he learned through academic channels and official literature almost 30 years back, even though we have made much progress in behavioral finance and behavioral economics in general over the last 10 years.

His most recent emerging mark calls weren’t always spot on and rumors were flying around that was one of the reasons he had had to leave his comfortable position at the top of emerging markets investing at Templeton in 2015. I would argue, that it was just a necessary generational change at the top of Templeton and at Templeton Emerging Markets Group in particular. We shouldn’t forget that the firm itself has been under enormous pressure from the likes of Vanguard, BlackRock, and Co.

And so Mobius ventured out on his own founding Mobius Capital Partners LLP fairly recently and doing what he has been known best – promoting emerging markets investing! But my major concern is that he will soon realize that this is a very different world from where he started 30 years back and without the funds and platform Templeton has always provided him and in effect insulated him from occasional bad calls (don’t mention the private jet he used jet-setting around the globe). He will soon realize that just by being  “long” emerging markets won’t work as well as it used to be. And just because he has been launching his own firm and series of funds is not a good reason to be bullish on emerging markets as of December 2018 and going into 2019.

Having said this, with the depth of emerging markets insight, vast network around the globe and value investing experience he is capable of making this giant leap at a rather late stage of his impressive career – this time as a stand-alone person. I wish him all the success and performance he deserves in his new endeavors. He will always be my emerging markets guru who brought me to Asia.

The post Ep43 Invest in Emerging Markets Now? appeared first on 8020 Investors.

Welcome to another episode of the 80/20 Investing Show.

This episode was recorded almost exactly a year ago. My apologies for this blatant delay, but the reason (as you will hear in the recording) was a technical issue I haven’t been able to solve until fairly recently. Nevertheless, the content and the wisdom that Reinder can teach us is timeless – Enjoy!

The fastest path to wealth is investing in entrepreneurship. Creating cash engines – or cash flow generating assets rather than buying someone else’s. Entrepreneurial investors – enterprising investors – take more risks, but they are aware of it and try to reduce it as much as they can. The result is more control, over their lives, their activities and with whom they want to work with.

Reinder de Vries is a freelance app developer and founder of LearnAppMaking.com. Since 2009 he’s built 50+ apps for iOS and Android, and his code is used by millions of people all over the globe. Reinder enjoys good coffee, reading, and can’t live without a super fast internet connection.

Reinder, thank you very much for coming to our show and I hope to catch up on your personal progress.

This concludes another episode of the 80/20 Investing Show, an investment podcast for entrepreneurial investors. My name is David Woo Schneider – Thank you for listening.

https://learnappmaking.com/

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In a regular series of reports on index funds and ETFs, I will open this series with the first episode on a brief overview of index funds and ETFs. These investment products have seen a commet-like rise over the last 10 years. Even in Asia, they have become phenomenal success story among retail investors and large institutional investors alike. Subscribe to learn more about these fascinating products, its advantages, its future trends but also some of its risks and pitfalls for investors. Let’s start with the basics.

Index Funds Indices And Benchmarks

Richard Ferri, the author of The Power of Passive Investing, defines indices as follows:

“An index is a generic term that describes a list of securities that are selected and weighted according to a set of rules provided by an index provider, and independent organization separate from index fund management.”[i]

So, how does this work? Let’s imagine you wanted to create your own fantasy portfolio of all the famous brand names you like, such as Nike, Apple or McDonald’s. You write them all down on a piece of paper and rank them by size, or by how much you like their logo, or by the results of personal surveys you did among friends and on social media. You compile this data, add the current market prices to each of these companies, and modify them by your chosen weightings. You might, for example, reduce McDonald’s because they did very poorly in the last quarter, or boost Nike because you just bought a new pair and they’re pretty good. Voilà, you have your own index!

Needless to say, it’s not as simple as that. Not everyone can create an index that is widely followed and trusted. Even fewer could actually demand money for revealing their secret index mix.  Only a handful of companies in the world can do this.

By far the most important company in this industry is S&P Dow Indices, a subsidiary of Standard & Poor’s (one of the rating agencies that so lavishly gave triple-A ratings on mortgage-backed securities that evaporated into thin air during the subprime crisis). Next consider famous country-specific index providers, which are usually spun out of financial journals and newspapers, such as the Financial Times FTSE 100 Index in the UK (Financial Times Stock Exchange), or the Japanese Nikkei 225 (created by the leading financial daily paper Nihon Keizai Shinbun, or “Nikkei”).

Then, there are benchmark indices created directly by the financial exchanges themselves. The most famous ones are the German DAX and the leading European indices grouped under the STOXX series (organized and managed by the Deutsche Börse AG). Some financial institutions have also created their own indices. The most famous of these is the MSCI index series (formerly known as Morgan Stanley Capital International) and the Lehman Bond Index series (now owned by British bank Barclays). MSCI Inc., in particular, prides itself on having more than “160,000 consistent and comparable indices, used by investors around the world to develop and benchmark their global equity portfolios.”[ii]

Financial market indices have broadened in terms of what actually counts as one over the years. All that a fund requires to qualify as an index fund is to have a mechanical set of rules for security selection, how they are weighted, and how they are priced. So anyone who has something to say about stocks and financial market instruments could create their own index.

Nevertheless, index fund purists insist that true index investing is all about benchmark market indices, which “represent an entire stock market and thus track the market’s changes over time.” Keep in mind that this definition applies not only to stock markets, but also to all other asset classes that can be represented by an index, and that is pretty much everything. Generally, broad market and market segment stock and bond indices are used for this purpose. In other words, they are used as a yardstick to measure active management performance; they’re used in economic analyses to measure the level of market activity; they’re used by academics to define market behavior; and they’re used by investors to set asset allocation policy. But most importantly, benchmark indices are the basis for the largest and most famous index funds of the world.

Combining Mutual Funds And Indices

Index funds, in their purest form, are nothing more than mutual funds with a mandate to mirror the development of a chosen financial market index – nothing more, and nothing less. They have been a convenient tool for investors to participate in the price performance of an index. So, what exactly happens when you combine mutual funds with indices?

First, the mutual fund in question needs to get in touch with the index provider and ask for permission to mirror that index. Any mainstream mutual fund company that intends to create an index fund and mirror one of those reputable indices has to pay for that right. It’s a licensing business. After all, it’s all hard work, and if you created the index, you want to get paid for it, especially when others make money on your name. Sure, fund companies could create their own indices that resemble the leading market benchmarks, but they sure wouldn’t sell as well as those of leading brand indices we can see in newspapers and on TV today.

Once all legal and financial matters are sorted out, the mutual fund receives the index “recipe.” In this thick pamphlet, you will find all the index’s rationales on how it has selected each constituent stock, and, more importantly, all the details how it calculates, weights and measures the different holdings within the index.

Now the real work starts. The index “advisor” (remember, these are the guys who actually run the show) instructs securities brokers and banks to invest in it in accordance with their interpretation of the index. Once all the money in the fund is deployed in accordance with the index recipe, all that is left to do is to monitor and administer the fund. Because mutual funds are designed to provide liquidity on a daily basis, and to continuously issue new shares for existing and new clients, there is always something to do. Clients leave and withdraw their money on a daily basis, while dutiful 401(k) savers provide inflow. From the advisor’s perspective, the key task is to make sure there is always enough money in their system to keep investing.

Another source of work for the advisors is corporate events, such as dividend issues and splits and mergers of companies within an index. Also, the index regularly updates its recipe, kicking out companies and bringing in new ones. Remember, funds don’t pay generous license fees on a subscription basis for nothing – there needs to be a semblance of added value by the index provider to justify continuous fees.

In a rare corporate visit to Vanguard in 2016, Bloomberg News had the chance to look behind the scenes of Vanguard Index Fund operations at their main office in Malvern, Pennsylvania, and to interview Gerry O’Reilly, manager of the $450 billion Vanguard Total Stock Market Index Fund (which matches the performance of its 3,600 stock benchmark index). What stands out is the efficiency of the 18 traders responsible for Vanguard’s entire US portfolio and a senior manager most clients have never heard of. Yet, O’Reilly is responsible for $800 billion in assets. Star fund managers, those who are often quoted in the financial press and celebrated by loyal ‘groupies, ’ have no room in index fund operations.

Yet, whether you are an index fund proponent or hardened naysayer, no financial product exists in a theoretical vacuum. It is, therefore, vital to study the history of the structure, advantages and flaws of index fund investing and their providers. In this chapter, we will look at how index funds emerged out of a long history of scams, successes, failures, and legislative coups. For the purposes of this book, we will place a particular emphasis on the evolution of equity index funds and the accompanying theory of “passive” investing. In essence, there are three key qualities of index funds that are touted on – their accessibility, their flexibility, and their affordability. Looking through their history will help us understand how each of these qualities came to be associated with them.

The History of Index Funds

To trace the roots of mutual funds, we have to go back to the age of steam and sail, when Europe was scrambling to carve up Africa and the world witnessed the rise of the first great industrial barons of the late 19th century. By then, people had already begun to collect money from willing punters for the purpose of investing it in other people’s enterprises. The original idea to pool money and diversify risk in different holdings and across countries was actually a Dutch one. A Dutch merchant, Adriaan van Ketwich, had the foresight to pool money from a number of subscribers to form an investment trust, the world’s first mutual fund, in 1774. The first British investment trust was the Foreign & Colonial Investment Trust, founded in 1868, in order “to give the investor of moderate means the same advantages as the large capitalists in diminishing the risk of spreading the investment over a number of stocks.”[iii] The concept of money pools, known in those days as “investment trusts,” had established itself as a mainstay by the 1880s in Britain. Individual investors would put their savings into these trusts, which in turn allowed them to invest in a diversified array of companies across the British Empire.

An excellent account of how these trusts functioned and thrived before 1929 is The Great Crash, 1929 by John Kenneth Galbraith. As he puts it: “The management of the trusts could be expected to have a far better knowledge of companies and prospects in Singapore, Madras, Cape Town and the Argentine [sic], places to which British funds regularly found their way, than the widow in Bristol or the doctor in Glasgow…The smaller risk and better information well justified the modest compensation of those who managed the enterprise.” Hence, funds didn’t just provide a mechanism through which to invest in big companies, they also embodied all the expertise required to do so efficiently.

The concept was soon exported to the United States, but the early trusts in America mostly maintained estates and trusts for their wealthy clients. Their primary goal was to conserve capital, rather than to multiply it – just as you would still expect from a family trust fund today. But what began as a noble idea to let professionals handle money, make use of public financial market investment opportunities, and use diversification to spread risk somehow got out of hand over the following decades. Eventually, it culminated in the epic Crash of 1929. No other book describes better and more vividly the lives of fortune seekers before 1929 than Edwin Lefèvre’s Reminiscences of a Stock Operator. The biography of New England speculator Jesse Lauriston Livermore describes his progression from a day trader of his time in “New England bucket shops” (the early market-makers and manipulators) to the famed market operator at Wall Street, where he made – and lost – his fortune several times over.

Though Livermore had his personal office and secretary in downtown Manhattan, and mainly traded and lost his own money, some more savvy business operators understood early on the value of collecting and managing money for others. They found that those who just couldn’t or weren’t willing to directly participate were eager to entrust their money to people who seemed to know a lot more than they themselves did. They all wanted in on the American dream, and, more importantly, easy money.

Subscribe to learn more about these fascinating products, its advantages, its future trends but also some of its risks and pitfalls for investors. Let’s start with the basics.

[i] Ferri, Richard A. The Power of Passive Investing. John Wiley & Sons. Kindle Edition. 2010

[ii] ETF insight. “Index Providers.” Accessed February 28, 2017. http://www.etfinsight.ca/?page_id=15043

[iii] IFIC. “The History of Mutual Funds.” Accessed February 28, 2017. https://www.ific.ca/en/articles/who-we-are-history-of-mutual-funds/The History of Mutual Funds

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Index Funds and ETFs – Audible Audiobook

Read by Satauna Howery

The post Ep41 ETF and Index funds Reporting Series – Part 1 – Background and History appeared first on 8020 Investors.

Softbank group 9984 is down over 3.5% today following the general trend of US and Asien markets. But one piece of good news for Masayoshi Son and his Softbank Group – he found plenty of buyers for his pending IPO on December 19th.

According to Reuters, SoftBank Corp (9434.T) priced its initial public offering (IPO) at 1,500 yen per share and will sell an extra 160 million shares to meet strong demand, a regulatory filing showed, raising 2.65 trillion yen ($23.5 billion) in Japan’s biggest-ever IPO.

Furthermore, I discuss the three fundamental reasons to sell your investments, particularly equities investments.

Read more here

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We reached another Bitcoin low now trading at $3350 – a level not seen for more than a year.

In an interview with Bloomberg today, Roger Ver aka Bitcoin Jesus made some interesting remarks.

“…the fact that hackers are hacking the system shows that it is worth something. If it wasn’t worth anything, it wasn’t useful, hackers wouldn’t be wasting their time trying to hack it – “

“…if anything, it’s just a more bullish signal that cryptos are here to stay and here for the long-term.”

According to his logic it’s good that hackers exist and continuously hack the crypto world as it brings more awareness to the whole ecosystem – and of course makes it stronger over time – By his logic, unfortunately, it seems that it needs to get a whole lot stronger and the awareness needs to turn positive rather than repelling potential investors.

It also seems that the whole system is built on the back of more naive investors and believers as they are usually the bag holders – A lot of money has come from Korean and Japanese individual investors- they won’t see their money back any time soon.

I admire Vers drive the bring the industry forward and I share his vision of improved payment systems using crypto technology. But I am astounded by his optimism and capability to filter out anything bad and actually turn it into something positive.

But this could also be interpreted as demented optimism in face of enormous hurdles, disgruntled retail investors and increased scrutiny by financial authorities.

Ver and his many follows might be right in predicting the future of money transactions but still be the loser as they have been betting on the wrong horse all along.

Toshiba Corporation is a Japanese multinational conglomerate headquartered in Tokyo, Hamamatsucho,  Japan.

It’s office is nestled between the commercial district of Shiodome and Shinbashi and Shinagawa area where Sony has its head office.

Its easy access to Haneda Airport the #2 airport of Tokyo and the more conveniently located airport of the two makes Toshiba Head office location a prime real estate object. 

Its product and service offering ranged from laptops to information technology and communications equipment and systems, electronic components and materials, power systems, industrial and social infrastructure systems,  providing consumer goods to part for trains and it infrastructure not only for the private sector but for the Japanese government as well. Passport and citizen databases are just some of the project Toshiba has been working on with other leading Japanese tech companies such as Fujitsu or NEC.

It’s history is as impressive as its wide product and services range.

Toshiba as we know it is a product of a merger of two venerable tech companies founded in the late 19 hundreds. These two companies formed Toshiba in 1939 at the the beginning of WWII. After the war the company contributed to Japan’s rise to the second largest economy by the late 80s

Toshiba is responsible for a number of Japanese firsts, including radar (1912), the TAC digital computer(1954), transistor television and microwave oven (1959), color video phone(1971), Japanese word processor (1978), MRI system (1982), laptop personal computer(1986), NAND EEPROM (1991), DVD (1995), the Libretto sub-notebook personal computer (1996) and HD DVD (2005).

Part II ARROGANCE and Death Blow

Early signs of hubris could be seen, when Toshiba’s leadership downplayed and ridiculed along with other established Japanese companies Sony’s early sprouts in the Shinagawa area as a capable consumer electronics company that produced transistor radios, Toshiba, as we can learn from Sony’s history, made life difficult for Ibuka and Morita san Sony’s legendary two co-founders. But Toshiba and others couldn’t stop the engineering and marketing genius that made Sony one of the leading consumer brands in the world.

In the late 90s and into the dotcom bubble phase, Toshiba went on an unprecedented shopping spree, making it a favorite customer for leading international investment banks.

The highlight of Toshiba’sacquisition strategy was its purchase of Westinghouse Electric company in 2005. Following a global trend of a nuclear future making it Toshiba bet the house on Nuclear unprecedented and power generation services.

In July 2005, BNFL confirmed it planned to sell Westinghouse Electric Company, then estimated to be worth $1.8 billion. The bid attracted interest from several companies including Toshiba, General Electric and Mitsubishi Heavy Industries.

On 23 January 2006, theFinancial Times reported that Toshiba had won the bid, it valued the company’s offer at $5 billion.

In a move of self-destructive behavior both Japanese companies started a bidding contest confirming once moreToshiba’s mind-boggling hubris and loss of reality based on successes from along distant past. But this time Toshiba’s luck would run out.

Right from the beginning, the deal would run into trouble. Ranging from accounting irregularities for simply overpaying for a subpar acquisition, the usual cultural barriers when Japanese make acquisitions overseas and simply financing issues in the wake of the Subprime crisis that peaked in early 2009. But the ultimate death blow would come on March 11. 2011.

The devastating earthquake in the Tohoku region of Sendai would bring a Nuclear dominated business strategy to an abrupt end.

In the typical fashion of Japanese delay and cover-ups, they stretched the enormous financial and operational problems for a very long time. Occasionally by making additional acquisitions(2013 acquisition of LNG business in the USA) just to go in “double or nothing” at a time where all lights were red at Toshiba’s accounting department.

But in 2015 – the game of “hide and seek” was over. The 143-year-old company had to reveal an accounting scandal with widespread irregularities at its global operations.

The ultimate shame came on 11 April 2017, when Toshiba filed unaudited quarterly results because of uncertainties at Westinghouse, which had filed for Chapter 11 bankruptcy protection. Toshiba stated that “substantial doubt about the Companys ability to continue as a going concern exists”.[4] Toshiba’s status as a listed company was at risk for a company that at that time was more than 140 years old.

In November a new strategy was announced under the new leadership of Nobuaki Kurumatani

The priority has been shedding assets, cutting jobs and which also includes 7,000 job cuts, or 5 percent of its workforce, over five years.

“We are moving to a more stabilized business model by removing risk segments,” Toshiba CEO told reporters in Tokyo.

With this, the whole strategy had to be revamped and a great unwinding followed under a new leadership. The once celebrated strategy of modern energy generation based on a nuclear core strategy was over and everything that followed was considered foolish or simply not modern enough. 

To cover past losses, Toshiba’s new leadership saw itself forced to sell it prime business united, it profit-generating and globally prized memory chip unit early 2018 . to a consortium led by U.S. private equity firm Bain Capital.  In early 2018 the company sold Westinghouse at a pittance for what it had paid for – The journey was over.

In November it was announced that Toshiba would sell the LNG business it had acquired back in 2013 to ENN Ecological Holdings, a unit of Chinese gas company ENN Group.

Toshiba also announced it would withdraw from a U.K. nuclear power plant construction project, after failing to offload the business.  It will start the windup process of British nuclear arm NuGen in January 2019.

Both units were loss makers and remnant of the old Toshiba.

The new CEO Nobuaki Kurumatani emphasized the company’s determination to invest in long-term growth, including lithium-ion batteries for automobiles and trains, as well as internet of things-related endeavors.

From fiscal 2019 to 2023, the conglomerate plans to invest 810 billion yen into such industries.

The company expects to generate more than 4 trillion yen in sales for fiscal 2023, with a 10% operating profit margin.

“We have enough competitiveness as a physical platformer with various devices,” Kurumatanisaid, “so we need to focus on digitizing our business model.”

So far, Investors responded favorably as news of Toshiba’s restructuring initiative spread. Toshiba’s shares surged 12.7 percent to close near two-year highs after the announcement reaching a new interim high of almost 4000 yen a share ($35).

It helped that Toshiba announced a share buyback plan that could see the repurchase of up to 40percent of its own shares starting this year.

Since then the stock price dropped back to 3500 ($31) as of December 7th.

Watch the video here!

The post Ep39 Toshiba’s mission back to innovation appeared first on 8020 Investors.

Yesterday US markets were closed. The funeral for recently passed away President George W. H. Bush moved the world. In particular, former President George W. Bush’s eulogy for his father was worthy of a U.S. President for U.S. President. The whole world gathered to express condolences to the whole family.

Back to the financial world, Asian and European markets were open for business. According to news, investors are getting increasingly nervous approaching the end of this year. A flattening yield curve, and an unresolved trade conflict, despite Chinese efforts to calm down emotions, investors feel that big change to one of the longest bull market is about to bite.

The German Stock Index DAX was down 1.19%. Japan closed in the red the same day and today booked another red day with Softbank down almost 5%. As if to play a bad prank on retail investors in regards to its pending IPO, the entire Softbank mobile network has been disrupted for hours. Apparently, they need the money to make some major infrastructure investments.

With Asia and Europe down, today’s US futures indicate a weak opening for today’s (December 6th) trading session,

These days there is a lot to worry about for investors, for each region, there are some big topics on the agenda. Trade dispute, tariffs on key industries and regional instability, whether we are talking about Ukraine or the Middle East.

Market experts, blame algo trading behind the steep declines this Tuesday following the bullish opening Monday. Well, what does algo trading mean? It means computerized trading whether directly influenced by human managers or completely standalone trading by programs that work like robots just for trading. The market transaction they control use advanced mathematical models to make high-speed trading decisions.

According to the same experts, 80% of daily moves in U.S. stocks are machine-led. They blame these trading activities for the erratic market moves because they won’t digest market news in the same we humans do. Sorry, to say that – so, what? These days, all trades are executed by computers and the arguments that robots are responsible for ups and downs is complete BS and irrelevant. Shall we slow down computer executions and trading just to simulate human imperfections of deep thinking before each trade? Have you filled out a trading order by hand recently or deeply discussed a market-moving news with the rest of the world or even within your trading community? The good old times, gentlemen clubs with cigars and Wall Street Journals, are over!

Portfolio managers whether mutual funds or ETFs have to balance their portfolios every day to provide liquidity or fine-tune their respective portfolios according to set parameters. And this applies to the whole world which trades the same stocks at the same time.  All this is done by computer programs to ensure organized and efficient trading at the highest speeds and lowest cost possible.  The volatile is just a side effect of massive order flows due to new innovative products, changed trading strategies and market making.

Don’t put the responsibility away from what is still a market-based human-led system. We are responsible for implementing and monitoring these systems and we are responsible for accumulating massive amounts of trades at the same time and at the split of a second.

The more important reason why we see these fluctuations in a split of a second is much deeper and complex to analyze. Global macroeconomic parameters have been changing and most investors are slow to digest them, as the still existing liquidity is used to cash out some of the smart money. Starting from interest rate changes, less liquidity, increased protectionism and less inclination to take unnecessary risks are driving factors that split the global investors’ community. Some are more capable to adapt than others.

Even After more than two weeks, Ghosn is still in confinement held by Tokyo Prosecutors. They have extended the arrest from 72 hours without formally charging him of any crime. This is perfectly legal as the Japanese legal system works very differently to the US. Prosecutors can extend detention by as much as 20 days with court approval. So Carlos Ghosn could still be in jail for a few more days (even over Christmas) before a decision will be published. Right now, we don’t hear anything from Ghosn directly and it has a good reason.  Most likely on the advice of his legal team, he is ordered to remain silent to make any unforced error in this high stakes poker game. In Japan, anything he says could be used against him at court. For Ghosn, it is like a marathon run he needs to endure a few more days – that means denying any allegations brought forward.

Unfortunately, the odds are against him. From past high-level cases in Japan, more than 99% of people who were charged were eventually convicted. Ghosn could face up to 10 years in Japanese prison if formally convicted. So it’s in his best interest to remain silent and wait for the official charges that can be better combated by his legal team. We will follow this case closely as business continues as usual at Renault and Nissan.

In this regards, French President Macron and Prime Minister Abe of Japan met at the G20 meeting where Macron expressed great concerns over the remaining fragile alliance. But according to Japanese press Abe seems to be less involved than his French counterpart in this saga. He reassured Macro to be neutral in this whole incident to let markets and the parties involved to find a solution. For Macron much more is at stake. For him Renault is of French national interest, that needs to be protected and if necessary nurtured to old strength. More on this case will follow shortly.

Softbank IPO Blog post and Video:

The post Ep38 Algo Trading Conspiracies and more on Nissan and Carlos Ghosn appeared first on 8020 Investors.

Today, we have a closer look at Softbank and its upcoming IPO for its telecom unit.

Softbank Group/Holding (9984.T) is the Japanese multinational holding conglomerate headquartered in Shiodome Tokyo, Japan. It’s holding the company that controls its famous tech investment fund – Vision Fund, telecom unit and internet business interests such as Yahoo Japan.  One of these units is dressing up itself for the biggest event in its history – an Initial Public Offering (IPO). It’s the Softbank’s telecom unit, that includes Softbank Broadband and mobile phone unit.

The details of this IPO are as follows:

It’s one of Japan’s largest IPO for a long time. At an initial launch price of ¥1,500 a share, the entire unit is valued at nearly ¥7.2tn ($63bn). A bit more than a third of this company is now for sale to the public and for that local and international investment banks (Nomura, Mizuho, Deutsche Bank, Goldman Sachs, JP Morgan and SMBC Nikko are joint global coordinators for the IPO) have been engaged in an unprecedented marketing campaign, including what are believed to be “Japan’s first TV ads for a private firm’s IPO.” The final countdown and the official book building starts on Monday and a final price will be set on Dec. 10. The shares begin trading on Dec. 19.

But at 1,500 yen a share, SoftBank Corp would trade at an enterprise value of more than eight times earnings before interest, taxes, depreciation and amortization. This is much higher than the four to five times of its larger rivals NTT Docomo and KDDI according to Analyst.

It’s only natural, that some bankers and analysts getting nervous. At such aggressive pricing, they wonder whether Softbank can garner enough interest from investors.  Japanese investors are not known for being risk takers when it comes to stock investments. Trading volume for Japanese stocks have been on the decline and only through the constant intervention by the Bank of Japan, has the stock market stabilized in recent years. Apparently, the BOJ is now the largest shareholder across the board of Japanese stocks.

So far these concerns have been unheard among Japanese retail investors, as brokers reported high demand from this particular group of investors attracted by the high dividend payout ratio promised (85%) and who believe in Son’s vision and investment acumen to make them rich shareholders. But are these hopes justified?

One can wonder whether telecom investments are the hot investments they used to be during the original DotCom bubble back in the late 90s. Today, the outlook for the telecom sector, especially in Japan, are bleak. A maturing market, declining population and fierce competition are just the major challenges Softbank will have to deal with in the critical eye of the open public. Only recently, it was announced that DoCoMo, the market leader, slashed subscription fees putting pressure on others to reduce prices. Furthermore,  Japanese prominent e-commerce leader Rakuten announced it would enter the same market with some innovative offerings. Yet, SoftBank Corp has been pitching itself as a tech-driven growth company, saying it will launch new businesses by teaming up with startups backed by its parent’s Vision Fund. But do Softbank Corp shareholders really profit from that? Shouldn’t they invest in Softbank group instead?

Softbank’s IPO greatly reminds me of Germany’s state telecom company that went public on November 18th, 1996 at a price of EUR 28. Very similar promises were made, such as good dividends, growth through clever investments in the tech field and execution of innovative strategies. Less than six years later it traded at less of a tenth of what it traded for at its peak. Empty promises and disappointing earnings were just some of the outcomes German shareholders had to deal with for many years that followed.

But Let’s reverse the situation: How does the IPO benefit the seller rather than the buyer? What’s in it for them?

Besides brokers who would like to participate in the fee bonanza, the biggest profiteers are of course Softbank Group, the holding company and its iconic founder and CEO, Masayoshi Son. Mr. Son owns 21.21% of Softbank and he has been the driving force behind reaching higher valuations and aggressive pricing. Today, Son’s personal wealth is estimated to be north of $23 billion.

One major advantage of going public with Softbank Telecom is that Softbank Group can be easier valued by analysts and institutional investors by just referring to its independently listed parts. CEO Son has often criticized the classic holding company discount because investors wouldn’t understand the golden eggs his goose would lay within a convoluted structure of investments.

Certainly, the IPO is aimed at providing the group with funds to pay down existing debt and to fund future investments done through its various group companies – Especially the $100 billion Vision fund which made headlines in recent months – and not always for its large tech investments.

It’s reported that Softbank group would reap a windfall of about $23 billion by offering a bit more than a third of this unit for sale to the public, while still being in firm control over it’s unit without the threat of unwanted shareholder activist. The $23bn raised are close to the $25bn raised by the 2014 IPO of China’s Alibaba. The fresh funds will come in handy, which will be used to realize Son’s 300-year outlook. Yes, you heard correctly – 300 years.

So far Softbank group has invested in companies such as Uber, Nvidia or Indian fintech company PayTm among many other headline-grabbing investments.  The best example is WeWork, the office sharing platform company modeled after Silicon Valley’s work environment and that encourages collaboration between its leasing tenants. Just recently Softbank Group through its Vision fund invested another 3 billion into the loss-making enterprise – which is now – you won’t believe it at a pre IPO price of 42 billion USD.

Interestingly, Fortress investment – the famous hedge fund known for distressed investments is now owned and controlled by Softbank Group.  As you can imagine, to fire those investment engines, all these investments require money – lots of it, especially if Mr. Son wants to see some of his vision become reality during his lifetime (61).

The question remains, do Softbank Corp, shareholders benefit from his personal ambitions? I seriously doubt it. Again, for that, you should be buying Softbank Group or Holdings (9984) directly.

As an individual investor, I salute Softbank and Mr. Son. His biography is an undervalued/underappreciated story in the West, where people such as Bezos, Musk or Zuckerberg dominate the headlines. He single-handedly, against all odds created Softbank out of nothing to a multi-billion conglomerate that resembles more a giant Hedge Funds or Berkshire Hathaway with tech engine rather than an insurance business engine.

Nevertheless, what’s good for Softbank and its 300-year mission, that according to Son, contains golden eggs and a fat goose, does not necessarily mean it will be good for the individual investor.

Overpaying for other people’s dreams and lofty visions; for something that may or may not materialize in the far distant future has never been a winning strategy for the intelligent investor, especially at times macroeconomic shifts we seem to be experiencing over the last months.

Son is a gambler; a shrewd gambler and there is nothing wrong with that. He has been riding a wave of good fortune for a very long time. But like any gamble who overstays his/her gambling activities, he or she will eventually experience setbacks. Mr. Son, is just at the beginning to experience his own. Sprint Nextel was a warning shot, but his close ties to the crown prince of Saudi Arabia could become more of a liability and image problem than an advantage. His numerous investments in China and strong ties to some high-level Chinese bureaucrats and business people especially active in up-and-coming technologies such as robotics, A.I and big data bear future risks if you consider a new world full of patriotic and nationalist talks – plus protectionism.

He will be wrong, eventually and when he is wrong he will be wrong big time! Something investors should consider going into 2019.

We will revisit Softbank and Masayoshi Son and his fascinating story to fame and fortune. Subscribe to my email list and watch my YouTube reports and updates.

SOFTBANK TELECOM/MOBILE UNIT IPO

Location: Shiodome / Ginza Softbank shop

Tokyo Shiodome Building, SoftBank’s global headquarters in Tokyo.

SOURCES:

https://www.cnbc.com/2018/11/30/softbank-sets-indicative-ipo-price-for-mobile-unit.html

https://en.wikipedia.org/wiki/SoftBank_Group

https://asia.nikkei.com/Business/Companies/SoftBank-aims-for-Japan-s-largest-ever-IPO-worth-23bn

The post Ep37 Softbank Corp and its IPO that puts smiles on brokers and Masayoshi Son appeared first on 8020 Investors.

On November. 19, Carlos Ghosn, Chairman of Nissan and CEO and Chairman of Renault, was arrested at the airport in Tokyo, Japan, for allegedly falsifying financial reports filed with the Tokyo Stock Exchange. Prosecutors say he is suspected of underreporting his income by $44 million over a period of more than five years.

Allegations against Ghosn brought forward by Nissan itself, suggest not only violations of securities laws, but he allegedly spent Nissan funds on fancy homes in Paris, Beirut, Rio de Janiero and Amsterdam, and on family vacations and other personal expenses. Apparently, he spent lavishly on himself, many times abusing Nissan’s generous contractual terms for expenses. Among them, spending for his personal wedding that at the Grand Trianon in Versailles, once favored by Marie Antoinette, and utilizing other executives perks, such as jet-setting around the world in a private jet.

In his first formal comment, after his surprise detention, Ghosn denies all allegations brought forward against him from prosecutors and Nissan internal investigative team. Among them, he denied reports that he passed on personal trading losses to the automaker. As it may be, it is important to note, that no charges have been brought forward as of yet.

Though, as the days have passed, it becomes obvious that all allegations and concerns brought forward have less of a punch that could trigger a lengthy prison term for Carlos Ghosn in Japan. As legal expert noted, it is much more likely that he will be released soon after paying a fine and promising improvement, hefty as the fine maybe. Certainly, the best possible outcome for the former hero of Nissan than any kind of prison term, though his reputation as the hero of Nissan and notorious cost-cutter will forever be tarnished by this drama in five acts.

Ghosn is by all standard a very capable manager and restructuring expert in his industry. He turned around France’s Renault SA, then Japan’s Nissan Motor Co., and he continued his success story at Mitsubishi Motor Corp. which became part of a complex triangular alliance.

For this Ghosn is greatly admired, among his peers and particularly in Japan, for rescuing Nissan from certain doom almost 20 years back. He is known as “le cost killer”.  He brought in modern management structure, empowered women in managerial roles, and personally oversaw key projects, such as the Nissan Leaf, Nissan’s entry into e-vehicle and e-mobility.

He reached a rock star like status even become the hero of a popular Japanese comic book series (Manga). These days, this isn’t that as special anymore as it used to be – even Warren Buffett, the chairman of Berkshire Hathaway, is featured in one of them.

But while renowned as an industry cost cutter and overly strict tyrant, Ghosn was also the peacock of his industry who stood out with his 5.6 feet (170 cm) and not always in a good way. His official take-home salary (public information) from all his position combined was several times that of rival Toyota Motor Corp.’s chairman, who earns relatively modest salaries.

Granted, Ghosn is not an owner-manager, as Akio Toyoda is, but he was at the top of the food chain when it came to compensation within his industry that could easily compete with other captains of industries in this all exclusive club of elites. But it is exactly this, and his eccentric behavior that seems to be the focal point of allegations and criticism pointed towards Carlos Ghosn, and from no other than Nissan’s CEO Hiroto Saikawa himself.

Ironically, he was handpicked by Ghosn and his protégé for many years. But it was Saikawa, who portrayed his boss in a way never seen or heard of before in Japanese corporate history. A long and emotional speech about betrayal and crime, saying he (Ghosn) had too much power and was given too much credit for Nissan’s success. Remarks such “too much concentration of authority”, “He did things that were very hard for somebody internal to have done,” or “It’s hard to put into words, but what I feel goes far beyond remorse to outrage,” raised eyebrows among reporters.

Yet, there is no Japanese law, against excessive use of company resources for personal usage. In regards to filing to authorities and securities law, Japanese corporate law is known to have plenty of room for interpretation in case lawmaker need to make ad hoc adjustments – causing nightmares for companies involved. All the allegations miss the last and final punch – a real sever violation of corporate laws, such as embezzlement or insider trading. For many professionals, it seems more a legal technicality that could have been solved behind doors rather in the open public.

So what is really behind Saikawa’s radical move, in a culture where saving face is valued above all else, and avoiding public attention is the highest priority? How is it that, Saikawa so openly criticizes his former mentor? Is this a personal vendetta – a coup d’état, the CEO wants to disguise? Is there more in play than just underreporting the chairman compensation to the financial authorities. Maybe a smoke screen or hidden message for someone else or just a pure act of desperation like a wounded animal that takes a final stand?

Some French media have suggested Ghosn’s arrest was a setup led by Saikawa and looking into the details suspicions are confirmed as news drips out day by day. Journalists reported they are being hand-fed material that is directly aimed at destroying Ghosn’s personal reputation and legacy – from sources within Nissan that are close to Saikawa.

Or the fact, that these investigations (underway for months) were kept so secretly and so covertly within Nissan that no one close to Ghosn (and these are a lot of administrative staff at its head office in Yokohama) have been involved, least informed about such serious internal investigations. When the news broke it was a complete surprise for Ghosn himself.

Turning to some of the players in the background, the French government has expressed concern about the future of the Renault-Nissan alliance, which it wants to deepen (it owns 15% in Renault). Emmanuel Macron, French President, who considers himself a fender of business interests and financial expert has always closely followed the auto industry and Renault as the largest company in particular. Too strategically important is Renault in Macron’s personal visions for his country, his economic policies, and global ambitions.

And returning to the aforementioned alliance which Ghosn forged, it has become apparent that it needed to be much more than just a loose alliance and I am sure Macron and Ghosn knew this themselves. But it might be these calculations that caused fear and pure anger, that triggered a faction within Nissan to take such radical and simply un-Japanese steps to challenge the Sun-King.

The future is uncertain, as France under the leadership of President Marco himself will most likely move in to integrate Nissan and to make Renault the global car manufacturer worthy of a Grand Nation. Because one thing is certain, neither company can survive on its own and the Japanese simply don’t possess the pomposity the French own but which is so vital for long-term success in this cut-throat industry.

Like in a Machiavellian playbook, CEO Saikawa’s personal victory over his former mentor and boss is absolute and complete. He didn’t shock and awe or simply challenge Ghosn. No, he utterly destroyed him to the point where Ghosn’ legacy is destroyed beyond repair. For that, he deserves respect from Machiavelli himself.

However, the move such as this, bear many risks and unknown consequences. A heroic CEO on a mission to bring back independence for his honorable company and himself, free of foreign aggression and influence, his personal vendetta could simply backfire.

Forcing a final decision as a last desperate attempt will most likely cause the opposite – a complete integration into a foreign managed umbrella company, where Nissan’s cultural identity will just become another brand; another product line serving a specific region and consumer taste – one of many in an increasingly competitive world of car manufacturing.

In the end, Saikawa himself might have brought Nissan into “play,” as investment bankers call it.  Something he seemed to have been fighting against by slaying the tyrant. In the end, it could be Ghosn who has the last laugh – though in a new and unfamiliar environment.

What will be the consequence for ambitious projects, such as Formula 1 or Formula E? We will revisit the Nissan story in about 6 months – signing off from Tokyo –David Woo Schneider.

Sources:

https://www.manufacturing.net/news/2018/11/nissans-ghosn-auto-industry-icon-scandal

The post Ep36 The fallen Sun King – Carlos Ghosn and Nissan appeared first on 8020 Investors.

Michaela Light is the author of the Amazon Best Seller Intuitive Leadership Mastery and host of the Intuitive Leadership Mastery podcast.

Michaela is foremost a location independent entrepreneur with formidable investment skills gained over many years of investing in herself and other businesses. She is one of the most generous and open-minded people I know. Listen to this episode as Michaela shares her insight on developing an intuitive mindset to lead a better and more balanced live that can help you in your investment decisions.

We help entrepreneurs and business leaders improve their biz intuition and use it openly in their companies. So they can make more money, have less stress and more joy. I believe that leaders who use their intuition more will make less stupid biz decisions that hurt other people or the planet.

What Would It Take?: Crush Craziness, Change and Chaos to Double Your Profits and Halve Stress 

From the Book Cover:

How is this book different than my last one? This book focuses on WWIT and is written for people newer to using intuition at work. Such as many entrepreneurs and business leaders. My first book, Intuitive Leadership Mastery, contains 15 other tools and is written for those more open to using intuition already.

“I rely far more on gut instinct than researching huge amounts of statistics.” – Richard Branson, CEO Virgin Group

Top business people “listen to their gut” to succeed faster. But how do you learn and improve your intuition in hours rather than decades?

The post Ep35 Michaela Light [Intuitive Leadership Mastery] appeared first on 8020 Investors.