Kuppy, what do you think of the super-cheap Chinese stocks. Some of them like NIVS seem to be priced at crazy levels.
NIVS has huge growth, and trades at just over 3x earnings. Is the chance of fraud enough to ward you away from stocks at these prices?
I don’t know anything about NIVS but I refuse to even look at Chinese stocks. The risk of fraud is simply too high for my tastes. There’s easier ways to make money.
I thoroughly enjoyed your latest piece.
When I was a kid in the late eighties I went to India – they didn’t even have a rag on the wall. Instead they had a bucket of water and an explanation on why no one EVER touched food with their left hand. As I understand from family members who make regular trips things are changing in this regard here as well.
Thanks for your ‘first hand experience’ on this. I have had similar emails from people. It makes me think I could be onto something here….
Kuppy, I’m usually intrigued enough by your ideas to do some follow-up research, and on some occasions, I have followed you in at still-favorable prices. However, I just don’t follow the logic on this toilet paper idea. First, 4 billion people don’t change their toilet habits overnight… and figuratively-speaking, 5 years is pretty much overnight when it comes to that many people. Second, even if something spurred such a mass change, can the plumbing in those countries handle it? I know places in the U.S. where it is taboo to put paper down the loo. I’ll bet that if 4B people are still using poo rags, dropping paper in the toilet will cause serious backflow… and it takes a lot longer to change the plumbing on a mass scale than to build a mill.
Clearly, the idea that 4 billion people change their habits overnight is a bit of hyperbole. If even 5% of these people change their habits in the next 5 years, you have 200 million people which is a big change for an industry that will take time to add capacity. I thought nothing about the plumbing systems. That’s someone else’s problem…. haha
In addition to toilet paper,demand for incontinence products is increasing at an increasing rate with the aging population. The change rate per incontinent person is a minimum of 4 times per day for urinary incontinence and more often if the patient is also bowel incontinent. An incontinent diaper is the eqivalent of at least 5 rolls of toilet paper which number I would have to verify.
In any event the demand for adult diapers has been rising exponentialy.I did some usage research for Canada and also toured a plant in China.I am not sure diapers are 100% NBSK.
In Canada with a population of 30 million the usage is 4.5 million per day excluding babies.
I note in pharmacies or grocery stores adult diapers take a full shelf width from the floor to top of display and often more. The displays have been a recent phenomena.
I haven’t verified the above figures for usage, but I know that NBSK figures prominently into diapers. Go figure, while trying to find one trend I may have found a back-door way to play a much larger trend (aging populations). I have found that many of the best investments are trends that have multiple drivers.
Thank you for your intriguing write up on the soft pulp paper industry. Two questions:
1. When you say that Mercer could see 140mm in free cash flow “next year”, do you mean 2011 or 2012?
2. Since Fibrek operates in both soft pulp and recycled paper, how easy or costly would it be for Fibrek to shift capacity from their recycled paper business into soft pulp (i.e. without building a new plant)?
1. I meant in the next 12 months. 2. I have no idea. I’m guessing that there is some hassle/cost or more people would be switching already. It is also an issue of being near a source of wood chips. You can only work with what grows near your mill.
Hi, first of all I would just like to say you have an excellent blog — I think I’ve read every single post.
This is more of a comment rather than a question: I think you need to be careful when extrapolating western comforts (e.g. toilet paper) to the emerging markets. I lived in Dubai from 1988-2001 and experienced the city from when it was a small backwater town to its current modern grandeur. During that time the Arabs still seem to prefer using a hole in the ground and a hose pipe. You can walk into a 5 star hotel and right alongside western facilities you will find large ceramic inlaid holes with hose pipes. I think this mentality may be common across most of Asia.
I think a better bet would be to invest in the fluff used to make baby nappies and female sanitary products (don’t know if its produced from the same softwood pulp or not, need to do some research on the subject). Of course this is all just based on my intuition.
Thanks, this is all a valid criticism. I actually asked a number of friends if there was a cultural reason that China/India/etc. would choose not to use tissue products. No one really had one, except that people are slow to change… But this is a very valid comment and I should have mentioned something about this in my original piece. I should have also mentioned that historically NBSK seems well correlated with cotton as they are somewhat interchangable in certain applications We all know how cotton has done lately…. I believe cotton or NBSK goes into baby nappies/sanitary products depending on the producer.
hey man, i just started reading your blog, interesting stuff. thanks for sharing your thoughts on some commodities like silver, i agree the price action and commentary from a lot of precious metals miners seems likely to bring onslaught of new supply. the price may get to more bubbly levels before eventually collapses to cost of production, but at this point even high cost guys can make money.
to your question about commodities where there is supply/demand imbalance, i have an idea. timberland/lumber in the pacific northwest/canada region. due to US housing bust, there was a demand issue (cyclical). and due to recent pine beetle infestation in massive parts of western canada, there’s been a supply issue (secular) as the infestation destroyed a lot of the timber. so demand dropped, now supply dropped, and now demand is coming back from two directions (China importing more as Russia puts exports restrictions on wood logs and housing in the US potentially turning). i think it’s worth taking a look, i’m playing it through WEF CN (Western Forest Products) but there may be others, outside of WY most of the timber and lumber oriented names are mid/small caps. let me know what you think, thanks.
Could be interesting. I don’t know enough about it and am worried that the demand part of the equation isn’t strong enough to power real growth. I’d also be scared of quicker growing eucalyptus supply.
they beat the cambodians!!
My friend “Mr. Asia” just sent this to me. I guess we went to visit the wrong stock exchange en utero.
Hi Kuppy: Oh the wonders of brainstorming…which is essentially what you are doing here on this website. ALL smart successful people do it by the way. Anyhow…I just have to respond to the diamonds issue. At last I get to give something back.
Anyhow…at one point in time during my research I came across this article written in 1982 about diamonds and deBeers. It is a long read but read it and you will then have an opinion about diamonds as an investment. http://www.theatlantic.com/magazine/print/1982/02/have-you-ever-tried-to-sell-a-diamond/4575/. Also GOOGLE “deBeers Class Action Lawsuit” and that will round out your education.
Figure I should post this, it’s a bit long (and dated) but interesting reading all the same.
was wondering what you’re opinion was of leverage/margin, etc. small cap investors tend not to leverage as much b/c of the volatility, but it’s difficult to make bank without leveraging to a certain degree.mind sharing any other mongolia companies that you’re looking at or invested in? i’m a fan of rubber and palm oil, for agri commodities, but prices have risen so much I don’t see much of a point. even being in the industry, we’re wary of the commodity prices here.
I don’t use leverage. I wouldn’t recommend using it either. These small companies can trade at any price in the short run. You wouldn’t want to be forced to sell at the exact moment that you should be buying more. I probably shouldn’t mention any more Mongolian companies. They’re all pretty illiquid. Finding the gems is half the fun anyway.