December 3, 2017
December 3, 2017


Warren Buffet talks at length of buying great businesses that he intends to hold “forever.” Is he making the best of having a such a huge & closely watched portfolio to manage or do you have fundamental differences with the hold “forever” concept? The high growth small cap stocks you focus on can’t be managed by a ham sandwich, so the long term is limited by having the right management. Is 5 years for a small cap the near equivalent of “forever”?

I try to buy and own companies forever. Unfortunately, many of my businesses have a macro thesis that underpins the investment and 5 years is a long time for most thesis as opportunities eventually disappear or become priced in. I say that I like to look for 5 in 5’s, which are opportunities to make 5-times your money in 5 years. More often, it ends up being three years and i’m up 3 or 4 fold and realize that there’s a better opportunity. Such is life. You always have to look for the best use for your scarce capital.

Why did you come to the conclusion that looking for structural macro driven themes as the back drop to an investment was a good idea and how do you mitigate the risks of this approach?

I think it maybe fair to say that not many traditional value investors operate in the way you do. Did you experiment with other approaches and find them floored in some way?

There are plenty of guys who buy ‘cheap’ companies. The issue is that cheap can become expensive if you are wrong about your investment. Cheap can also stay cheap for a very long time. That’s why I focus on the macro. If you get the macro right, you have a huge tail-wind. More importantly, eventually people start to look at your cheap company and you get multiple expansion–hence your stock goes up and you aren’t waiting years for the cheapness to be recognized. Besides, the market rewards growth. There are lots of boring businesses that will have the same share-price years into the future. You need the growth and the right macro drivers mean that your company isn’t fighting for market share–instead it is just holding steady in a growing market.

How to mitigate the risks of this? Make sure you get the macro right….. If you get the macro wrong, you should at least have a cheap stock. If you get the macro right and get the stock wrong, you usually get bailed out too. It’s the reason you need as many drivers as possible going in your favor. You want to make sure you protect your risk–upside will always take care of itself.

Kuppy. Looks like you timed your exit on miners well. Wish I had listened to you. What are you looking for to get back in.

I didn’t sell everything, just my liquid trading miner positions. I didn’t even sell all of this, just a portion in late December and a larger portion the first trading day in January. I have core metal positions that I NEVER sell.

I have a very large cash position and I use these mining companies as a substitute for cash. This means that I need to trade around them sometimes. In the past two days, I have repurchased a bit more than half of what I sold. Is this the bottom? Who knows. These companies sure are cheap at current prices. More importantly, I feel that a lot of the speculative interest has been liquidated.

Ok that is twice.. I give up…. What the hell does eucalyptus have to do with anything? I dont understand Harris…..?

I think you are referring to eucalyptus plantations which are hardwood pulp plantations. They have really hurt most northern pulp mills because hardwood eucalyptus (southern locations) grows much faster than northern pulp varieties. It is the reason that many of these things are bankrupt. For decades, hardwood pulp has been increasingly substituted for more expensive softwood. However, you cannot substitute hardwood for NBSK (or not in good quantity) for tissue. The game of substitution has ended. With cotton prices going up, the demand has swung the other way and NBSK is now being substituted for cotton through rayon. I don’t pretend to understand all the intricacies, but I can see the general pattern.