Monday, February 29, 2016

Tell Warren Buffet: I Can Sleep On His Matress

Today Warren Buffet said the following: "Berkshire Hathaway is sitting with billions of dollars of euros in an insurance company ... in Europe and they will bear a negative rate. We would be better off with a big mattress in Europe that we just stick all this stuff in, if I could just find a person I trusted to sleep on that mattress." Quoted from here:
Well, tell Warren he's got his man (and woman, my wife). No problem, Berkshire Hathaway puts that mattress in some nice home somewhere in Europe, pays for the house, utilities and protection. And I just live here. I will sign an obligation to sleep on the mattress with money, no problem.
But come on! I don't understand why such a great investor keeps idiots to manage his money in Europe. There are a lot of different tools, all bearing interest, to keep your money in. You can invest in sovereign funds (well, Germany is effectively at zero interest, but it's not the only country in Euro zone). There are sub-soveregns (what we call munies in US), issued by provinces and municipalities. There are corporate notes, lots of which are issued by reliable, well-capitalized and profitable companies. What's the problem?
It's a problem for US retail investor. I'm looking for the last several years for some funds investing in Euro debt, and found essentially nothing. There are several funds, but in countries I'm not interested. When PIIGS panic hit (concerns about sovereign debts of Portugal, Italy, Ireland, Greece, Spain), I was ready to buy all of them with exception of Greece, didn't see any tools. Now I'd love to invest in sub-sovereigns, nothing.
For Berkshire Hathaway, having billions and established management in Europe, it's not the problem of finding investments. It's a problem of management. I bet I can find a lot of tools and build a good debt ladder for anything Berkshire can throw at it. European debt market is not as big as ours, but it's for sure orders of magnitude bigger than what Berkshire Hathaway has.

Wednesday, February 10, 2016

Why I Bought PayPal

Bought PayPal (PYPL) yesterday. Wanted to buy this great company for a long time, but didn't like the price. Now price is OK. Doesn't mean it can't go lower, nothing is certain. But fast growing company, part of internet financial revolution, trading at less that 20 future P/E and PEG 1.20 is cheap in my view.
There are several new growth areas for a company. First of all, now many companies offer PayPal as an option when paying for online purchases. Second is If you transfer money between countries, you know how outrageously expensive it is for small amounts. Xoom lets you transfer money much cheaper at better currency conversion rates that alternatives.
There are companies on the receiving side as well. I don't know how long Moneygram (MGI) and Western Union (WU) can survive. MGI, in my opinion, is walking dead. WU has bigger reach and a lot of loyal customers. I think those loyal customers are growing old and dying, and company will be dying with them.

Full disclosure: I have long position in PYPL and no positions in MGI and WU.