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2015-05-28

  • batbeer2 commented on Charles Sizemore's article 05-28 23:23
    The Charter – Time Warner Merger: Big Cable Tries to Stave Off the Inevitable
    Charter Communications, Inc (CHTR) is looking to succeed where rival Comcast Corporation (CMCSA) failed in acquiring Time Warner Cable Inc. (TWC)....
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    batbeer2 05-29 00:22
    • >> I think it largely explains Google's rationale for pouring money into Google Fiber.

      Perhaps.

      One more thing. The "old" networks are 90% fiber already (the ditstribution network is all fiber). It is just the last mile (usually a bit less sthan that) that has the coaxial copper cable. The reason for that is that you have to dig up people's lawns to replace that.... and as noted the coaxial cable is a pretty good medium with lot of unusued capacity.

      The point here is that these companies (unlike Google) have a large and dense fiber network in your neighbourhood already. It is just not visible.

      Cable One (GHC spinoff) is the most interesting to me because it has a presence in lots of rural communities which means you have to dig up a lot of lawns to put in new insfrastructure.
  • batbeer2 commented on Charles Sizemore's article 05-28 13:31
    The Charter – Time Warner Merger: Big Cable Tries to Stave Off the Inevitable
    Charter Communications, Inc (CHTR) is looking to succeed where rival Comcast Corporation (CMCSA) failed in acquiring Time Warner Cable Inc. (TWC)....
    View all 2 comments
    batbeer2 05-28 14:31
    • >> Cable TV and internet are two very different products, even if they are provided by the same companies. Cable TV is a premium product with premium pricing, but internet service is far more commoditized.

       

      LOL I beg to differ

      Yes, you are right, consumers think of Internet as a commodity and look only at the price. But as important as customer perception is, it does not trump the laws of physics. That is exactly why these companies can treat their customers like dirt and make a lot of money at the same time.

      Without going into too much detail....

      That (coaxial) TV cable can easily carry 50 channels of High Definition digital video into your livingroom Concurrently. I'll use 50 for the sake of this discussion. Those digital channels require just a small fraction of the capacity of the cable and some peope reading this know for a fact that that cable can carry much more than 50 channels.

      Now find me another "commodity" Internet medium that can do that.

      What would you pay for 4g wireless bandwith that could theoretically carry 50 channels of HD video?

      Answer: Prohibitive.

      Could you stream 10 (not 50, just 10) channels of HD video over the latest greatest wifi concurrently?

      Answer: No. I'm talking local network within the walls of your home..... less than 20 yard range. Not a chance. 

      Could you stream 10 (again not 50) channels concurrently over your average twisted pair copper (plain old telephone system) line.

      Answer: No.

      People have no idea of the bandwith of that coaxial TV cable as compared to any other medium you have available in your living room. Charter knows this and Comcast and Level3 and incidentally Vodafone....

      So yes, as TV dies, the consensus view is that the cable becomes worth less.

      But what is not generally realised is that the demise of TV actually frees up the cable carry much more interesting stuff at a rate you couldn't reproduce on any other commonly availabe medium. 

      In short, that cable is not a TV cable at all. It is just a cable and it can do lots of very inetersting things. For many years it has been associated with anaog and then later digital TV but that coaxial cable doesn't care. It just carries signals and it is very good at doing that.

      Financially it gets inetersting becasue the cable companies pay for the content they push to you (that's  how that ecosystem works). They subsequently bill you for the use of the cable but also the content. It's not the cable that's expensive, it is the comntent (which most of the time you don't want).

      When consumers stop watching TV and start using that cable exclusively for Internet then the cable companies no longer have to pay (as much) for the content but they still get to bill you for the use of their cable. That has some very interesting efects on their margin.   

      Just some thoughts.

2015-05-22

  • batbeer2 commented on The Science of Hitting's article 05-22 16:44
    Spotting Hidden 'Cockroaches' In Investing
    “There’s seldom just one cockroach in the kitchen. You turn on the light and all those others start scurrying around. I couldn’t find the...
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    batbeer2 05-22 17:44
    • >> I am not certain whether one can generalize this to other industries. Incentives are key everywhere, but I don't think there are other industries with a similar level of complexity and opaqueness as banking.

      I would argue that the complexity is created to fool the uninitiated. In essence it does not get much simpler than a bank.... yet that is where you'll find endless layers of complexity. GE created a bank to smooth earnings. Management didn;t even make a secret of it. So that is at least one case where we find managers have adding layers of complexity specifically to create earnings if and when they wanted. I'm happy to see GE is now simplifying its balance sheet.

      That captive bank they're spinning out almost brought down the company. 

      In sum,

      Is it bad behaviour that creates the complexity (think Enron)? or is it inherrent complexity that causes bad behaviuor to go undetected?

      Either way, a big balance sheet (relative to revenue) and opaqueness are joined at the hip.... which was my point.
  • batbeer2 commented on The Science of Hitting's article 05-22 11:28
    Spotting Hidden 'Cockroaches' In Investing
    “There’s seldom just one cockroach in the kitchen. You turn on the light and all those others start scurrying around. I couldn’t find the...
    View all 7 comments
    batbeer2 05-22 12:28
    • >> I agree with Thomas also, there are bad apples even in the best orchards!

      Perhaps.

      But at a company like Citigroup with two trillion worth of assets, I'd say tou can bet your bottom dollar there are 20 cockroaches for each one you see. At a company like Coca-cola you may spot a few but they certainly have fewer places to hide. 

      My theory is of course hard to prove simply because it is difficult to count cockroaches.

      But it is fair to say history has shown critical problems at places like Citigroup, Salomon Brothers, AIG, etc. etc. show up long after they have become too big to handle. All these companies required huge ammounts of capital (=they had low returns on capital). 

      Take Enron. That was a pretty simple busines untill someone grew the balance sheet to ridiculous proportions. Many problems where swept under that rug. When the problems finally became apparent, it was too late. A big balance sheet adds a layer of obscurity that makes it easier for management to hide problems and/or investors to spot them.

      At places like Coca-cola, C. H. Robinson and Precision Castparts there are also problems but they show up long before they are big enough to kill the company. Just name me one example of a company with high returns on capital that had a scandal that brough down the house. 

      Best example I can think of is Polaroid and that one took decades to come to its knees. I don't think it was an accounting scandal that finally did it in.

      Again, just another reason to prefer simple businesses with high returns on capital. 
  • batbeer2 commented on Canadian Value's article 05-22 00:08
    Wake Up Europe - An Essay From George Soros
    Europe is facing a challenge from Russia to its very existence. Neither the European leaders nor their citizens are fully aware of this challenge or...
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    batbeer2 05-22 01:08
    • What we have here is a guy who arrived in the UK as a refugee in 1947. Penniless. In the UK he got an education at the expense of British taxpayers (and a bit of charity). This helped him get a job in the US as an options trader. In this capacity, his knowledge of the British system enabled him to make a fortune at the expense of those that helped him when he was penniless. 

      And now he's writing essays about how to shape the future of Europe. Essays that would probably not end up on this site if not for the fact that he is famous for breaking the bank of England. 

      I think it is fair to say ths guy is an opportunist and an arrogant one at that.

2015-05-20

  • batbeer2 commented on The Science of Hitting's article 05-20 13:36
    Spotting Hidden 'Cockroaches' In Investing
    “There’s seldom just one cockroach in the kitchen. You turn on the light and all those others start scurrying around. I couldn’t find the...
    View all 3 comments
    batbeer2 05-20 14:36
    • Thanks for an interesting article.

       

      A thought:

       

      In life, where would you go hunting for a cockroach? 

      Now invert. Where would you go if you wanted to avoid running into a cockroach?

      I think in business, crooked managers are drawn to those places where you have mountains of other people's money: banks, insurance companies, gambling houses....

      Conversely suck managers are not attracted by plain old operating/manufacturing businesses like C.H. Robinson, Lindsay, Coca-cola etc.

      In my view, you are less likely to run into unpleasant surprises if you stay away from banks, insurance companies etc. and stick to boring businesses like CHRW, KO, LNN, PMD etc. etc.

      In other words, businesses that require very little capital to begin with (asset light) come with the added advantage that they do not attract those with an unhealthy appetite for other people's capital.

      Just another reason to seek out companies with very high returns on capital.

2015-05-19

  • batbeer2 commented on Bronte Capital's article 05-19 11:33
    McDonalds: property, ego and identity
    I have just spent a few days in the modern Middle East cities of Doha and Abu Dhabi. This is the only place I have seen which matches China for just...
    View all 1 comment
    batbeer2 05-19 12:33
    • Hi, thanks for an interesting article.

      You say:

      >> They can't possibly be making money here - just planting the flag amongst all the Italian restaurants.

      Off the top of my head, McDonalds rakes in 10% more revenue per square meter than any of their peers (KFC, Wendy's et al). This by the way drops straight down to net margin so in general it isn't like they overpay for the shops they own.

      If, like you imply, they are irrational in picking their spots, what are the others doing wrong?

2012-04-22

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