Leo's practice land
2014年2月23日星期日
2014年2月8日星期六
Partial integration
I am coming back.Lots of works recently...
Today, I would like to talk about one and only one thing, partial integration.
What I observed in the past several month was special intellectual property right sharing between big companies. In current market, the company are too big to be merged in many industries because the target company is either expensive or hard to assess the future value. On the other hand, there are more and more cooperation among different industries making the specialized companies try to find other ways to develop their projects.
All this facts indicate a requirement that the company should keep the specialization when they develop business across the industries.
How?
For now, I found two methods. One is cross-licensing and the other is joint stock across the industries.
There are lots of lawsuits about the intellectual property right among the internet companies in the past several years. No disrespect for intellectual property, I think it was waste of too much money for both companies and society.
In order to delineate the intellectual property right and threaten the potential tort of intellectual property right, the companies and court have to put lots of time, money and energy into the dispute, which may lead even a higher cost, exceeding the benefit in total. It is actually irrational for both parties from the game theory.
Hence, many companies are seeking a way to conditional sharing their intellectual property right to each other, which is actually can be regarded as an intellectual property pool among several parties. The party who takes part in the contract can benefit from using intellectual property right freely. It is a brilliant way to save the legal cost for all companies who may get involved into property right lawsuit.
Another method is joint stock. It is actually an interest-sharing to overcome the potential competition in the some field. Through the joint stock, two parties can develop a mutual benefit plan in different niche market or even different industry. In current market, I think we should turn to pay more attention on the competition cost rather than monopoly issues.
Today, I would like to talk about one and only one thing, partial integration.
What I observed in the past several month was special intellectual property right sharing between big companies. In current market, the company are too big to be merged in many industries because the target company is either expensive or hard to assess the future value. On the other hand, there are more and more cooperation among different industries making the specialized companies try to find other ways to develop their projects.
All this facts indicate a requirement that the company should keep the specialization when they develop business across the industries.
How?
For now, I found two methods. One is cross-licensing and the other is joint stock across the industries.
There are lots of lawsuits about the intellectual property right among the internet companies in the past several years. No disrespect for intellectual property, I think it was waste of too much money for both companies and society.
In order to delineate the intellectual property right and threaten the potential tort of intellectual property right, the companies and court have to put lots of time, money and energy into the dispute, which may lead even a higher cost, exceeding the benefit in total. It is actually irrational for both parties from the game theory.
Hence, many companies are seeking a way to conditional sharing their intellectual property right to each other, which is actually can be regarded as an intellectual property pool among several parties. The party who takes part in the contract can benefit from using intellectual property right freely. It is a brilliant way to save the legal cost for all companies who may get involved into property right lawsuit.
Another method is joint stock. It is actually an interest-sharing to overcome the potential competition in the some field. Through the joint stock, two parties can develop a mutual benefit plan in different niche market or even different industry. In current market, I think we should turn to pay more attention on the competition cost rather than monopoly issues.
2014年1月24日星期五
Where is the money and Amazon
I am taking an exam recently so the update may be slow.
It is interesting to ask Federal Reserve a question, "In the last five years, you have released more than more than 4 trillion dollars, where is the money?"
It seems there is no inflation and all economic indicator shows a positive future. Dose the money have that magic?
My question is no. Although lots of economists, reviewers and policy-makers are optimistic to the recovery and next flourish period, I doubt about it by the question I mentioned above.
Please see a simple graph:
This is the M2 and GDP and the ratio of M2 to GDP graph.
If we just take a look at GDP or M2, it is OK. However, the point is the ratio of M2/GDP. It usually measure the level of the capitalization or financialization of a country. Usually, the developed country has a higher than developing country and this ratio is usually over one. However, U.S. is an exception. The reason is complicated but mostly from its high consumption preference. When this ratio increases, it means more and more money flows to the investment to the future, which obviously lead a flourish of the capital market, especially stock market. However, the problem is that a huge increasing in short time is pushed from the external factor, QE, which the investment is all encouraged by the Federal Reserve.
A policy-made low interest rate will twist the real capital cost, which high probably leads a systematic investment fault. It is rarely to see all industries have the technology revolution at the same time. Hence, the market flourish is lack of fundamental but established by a good-will or perspective. It is risky.
As long the Internet technology, data exploitation or other concepts are not strong to support the good-will or perspective, the investment will get nothing return, and thus all market price will crash down to eliminate the part of future confidence. It is risky.
I didn't get enough data on that but I guess that 1) the P/E ratio of U.S. stock market was increasing for the past several years and will continuously increase in the next few month; 2) The number of the listed companies who are losing money was increasing and will increase in the next few month; 3) The Standard Deviation of the P/E in U.S. market will become big, which shows a gap between confidence and real profitability.
Amazon
Amazon has an outstanding advantage on their platform. Neither Google Play nor iTunes can compete with the Amazon. B&N is losing money that the market share is much lower than Amazon.
The platform advantage gives the Amazon strong ability to collect customers' preference which can be digitized for data-driven promotion. On the other hand, Amazon is developing the new logistic technique although I doubt that UVA logistic. The future of logistic, in my opinion, should focus on order prediction. For example, the textbooks should be sent to the storage where is nearby the university when the new semester is coming. It focuses on data exploitation.
Amazon has a nice and clean financial statement, the sales increased excellent. The gross margin is good. The management cost increased a little faster than the sales but barely satisfied. The R&D increased dramatically, which mostly influenced by the market trend. I am worried about that as mentioned above.
The Amazon is at the dominated position in the vertical industry chain because it has lots of account payable, while it can be treated as the short term loan. The debt structure is health that most of debt is long term borrowing.
Overall, the Amazon itself is an excellent company. However, because I do not do a technical analysis, it is hard to say take long or short position on that.
It is interesting to ask Federal Reserve a question, "In the last five years, you have released more than more than 4 trillion dollars, where is the money?"
It seems there is no inflation and all economic indicator shows a positive future. Dose the money have that magic?
My question is no. Although lots of economists, reviewers and policy-makers are optimistic to the recovery and next flourish period, I doubt about it by the question I mentioned above.
Please see a simple graph:
This is the M2 and GDP and the ratio of M2 to GDP graph.
If we just take a look at GDP or M2, it is OK. However, the point is the ratio of M2/GDP. It usually measure the level of the capitalization or financialization of a country. Usually, the developed country has a higher than developing country and this ratio is usually over one. However, U.S. is an exception. The reason is complicated but mostly from its high consumption preference. When this ratio increases, it means more and more money flows to the investment to the future, which obviously lead a flourish of the capital market, especially stock market. However, the problem is that a huge increasing in short time is pushed from the external factor, QE, which the investment is all encouraged by the Federal Reserve.
A policy-made low interest rate will twist the real capital cost, which high probably leads a systematic investment fault. It is rarely to see all industries have the technology revolution at the same time. Hence, the market flourish is lack of fundamental but established by a good-will or perspective. It is risky.
As long the Internet technology, data exploitation or other concepts are not strong to support the good-will or perspective, the investment will get nothing return, and thus all market price will crash down to eliminate the part of future confidence. It is risky.
I didn't get enough data on that but I guess that 1) the P/E ratio of U.S. stock market was increasing for the past several years and will continuously increase in the next few month; 2) The number of the listed companies who are losing money was increasing and will increase in the next few month; 3) The Standard Deviation of the P/E in U.S. market will become big, which shows a gap between confidence and real profitability.
Amazon
Amazon has an outstanding advantage on their platform. Neither Google Play nor iTunes can compete with the Amazon. B&N is losing money that the market share is much lower than Amazon.
The platform advantage gives the Amazon strong ability to collect customers' preference which can be digitized for data-driven promotion. On the other hand, Amazon is developing the new logistic technique although I doubt that UVA logistic. The future of logistic, in my opinion, should focus on order prediction. For example, the textbooks should be sent to the storage where is nearby the university when the new semester is coming. It focuses on data exploitation.
Amazon has a nice and clean financial statement, the sales increased excellent. The gross margin is good. The management cost increased a little faster than the sales but barely satisfied. The R&D increased dramatically, which mostly influenced by the market trend. I am worried about that as mentioned above.
The Amazon is at the dominated position in the vertical industry chain because it has lots of account payable, while it can be treated as the short term loan. The debt structure is health that most of debt is long term borrowing.
Overall, the Amazon itself is an excellent company. However, because I do not do a technical analysis, it is hard to say take long or short position on that.
2014年1月20日星期一
Comments on current event and TESLA
Starting from this article, I would like to talk about specific event or company. Here is the structure for the future article, one discussion on current event followed by a company comments.
Poor and rich
Recently, many media companies showed their worries about the gap between poor and rich. They reported that “Richest 1% own nearly half of world's wealth” (US today), "Wealth of 85 people equals that of billions of poor, charity says" (The Seattle Times), etc. However, they actually missed one important different between the wealth and living condition, which they have different concept.
The living condition is mainly based on consumption, which the wealth will include the investment. Firstly, we should take a look at the proportion of the total consumption to the total GDP, which means the consumption is the better indicator rather than income. According to this point, the consumption in 2010, 2011, 2012 had increased 3.6%, 4%, and 3.5%, respectively (World Bank). Even we take the inflation for account, it seems like the average living condition in U.S. was increasing stably.
Secondly, only one situation that can the rich people will harm the poor people is the rich people have the competitive consumption to the poor people. For example, the rich people use the grain to produce bio-fuel, which lead a price increasing of the grain. In this situation, the poor people will suffer from the expansive food. Hence, it is better to check the structure indicators like Engel's Coefficient. In 2012, U.S. Engel's coefficient is just 7%, which is much lower than the 12.7% in 2008. It shows a great improvement for the low class people because they used less money in the food and basic consumption. Why we say a lower Engel's coefficient benefits the poor people? The reason is the rich people who make lots of money has a limitation on the basic consumption. There will be a big different between unemployment and millionaire on their food and dress. However, this different will disappear between millionaire and billionaire.
As long as the rich people didn't have a competitive consumption to the poor people, the living condition of poor people won't be worse.
Thirdly, the rich people may have irrelevant consumption or even positive consumption. For example, the rich people may spend lots of money on luxury car, or they may go to Las Vegas for several night, which are mostly irrelevant to the normal people. This consumption will not harm to the poor people. Nevertheless, those consumption like charity funding (Gates-Melinda Fund) or free private museum will benefit the public. It a good thing.
Hence, people should pay attention on the news. The government should not use the gap between rich and poor to start a redistribution plan.
TESLA
TESLA is a hot topic because it combined the new energy and "iron man" founder, Elon Musk. I respected Elon Musk because he had wise viewpoint on the future development, which are Internet, new energy and Space technology. Although we have one different, we still have two in common.
He got great success on PayPal, but he didn't persist on that, which he miss a great opportunity to develop a new commercialization of the Internet. Alibaba developed this idea with ALI-PAY, which it became the new way of Online payment and investment in present.
Mr. Musk started his TESLA company and also got a great success. I also admitted this company has brilliant future. However, I believed TESLA has been over-estimated.
I have three reasons.
Firstly, the TESLA has difficulty on productivity and cost. By the end of 2013, the total productivity of TESLA is only round 22000 (Green Car Report), which is far more less than the Big automobile company. The total revenue is only 1.7 B USD, while the GM is 154 B, the Volkswagen is 84.3 B, and the Toyota is 67.07 B (Yahoo Finance). It is tough for TESLA to challenge the traditional automobile companies with one technology in few years. The cost of TESLA indicates that the model S and model X can not be a popular car in the market. Few people choose the TESLA as their first car or only car because they mostly treat TESLA an artifact or toy rather than a vehicle. The market share and the diversification of the product chain are the Achilles heel of the TESAL.
Secondly, the gross margin of the TESLA is only around 18%. As a luxury product, this gross margin can not be satisfied. This number also shows, the new energy technology is still not mature.
Thirdly, I think the other automobile companies is catching TESLA on the new energy technology. German and Japan are very competitive on their energy saving. They don't worry about the TESLA because its market share is too small to be a threat. In the long term, TESLA can hardly be the leader in the new energy technology area because GM, Volkswagen and TM have more capital on R&D and human resource.
As a conclusion, I believe the best time for TESLA is for next three year because this is the only time for TESLA to expand their market share, diversify its product chain and lower the cost with the help of it leading battery technology. The price of TESLA will hit the top 350 USD after the Model X comes up by the year of 2015. And then, with the more competitive of the automobile industry, TESLA will stay in the minority of population or Luxury brand, which is similar to Hummer, Maserati or Bentley. The reasonable price of TESLA will be around 150 USD.
P.S. Elon Musk is called Iron Man. Can he lead another innovation revolution that can excess the other company 10 or more years?
Poor and rich
Recently, many media companies showed their worries about the gap between poor and rich. They reported that “Richest 1% own nearly half of world's wealth” (US today), "Wealth of 85 people equals that of billions of poor, charity says" (The Seattle Times), etc. However, they actually missed one important different between the wealth and living condition, which they have different concept.
The living condition is mainly based on consumption, which the wealth will include the investment. Firstly, we should take a look at the proportion of the total consumption to the total GDP, which means the consumption is the better indicator rather than income. According to this point, the consumption in 2010, 2011, 2012 had increased 3.6%, 4%, and 3.5%, respectively (World Bank). Even we take the inflation for account, it seems like the average living condition in U.S. was increasing stably.
Secondly, only one situation that can the rich people will harm the poor people is the rich people have the competitive consumption to the poor people. For example, the rich people use the grain to produce bio-fuel, which lead a price increasing of the grain. In this situation, the poor people will suffer from the expansive food. Hence, it is better to check the structure indicators like Engel's Coefficient. In 2012, U.S. Engel's coefficient is just 7%, which is much lower than the 12.7% in 2008. It shows a great improvement for the low class people because they used less money in the food and basic consumption. Why we say a lower Engel's coefficient benefits the poor people? The reason is the rich people who make lots of money has a limitation on the basic consumption. There will be a big different between unemployment and millionaire on their food and dress. However, this different will disappear between millionaire and billionaire.
As long as the rich people didn't have a competitive consumption to the poor people, the living condition of poor people won't be worse.
Thirdly, the rich people may have irrelevant consumption or even positive consumption. For example, the rich people may spend lots of money on luxury car, or they may go to Las Vegas for several night, which are mostly irrelevant to the normal people. This consumption will not harm to the poor people. Nevertheless, those consumption like charity funding (Gates-Melinda Fund) or free private museum will benefit the public. It a good thing.
Hence, people should pay attention on the news. The government should not use the gap between rich and poor to start a redistribution plan.
TESLA
TESLA is a hot topic because it combined the new energy and "iron man" founder, Elon Musk. I respected Elon Musk because he had wise viewpoint on the future development, which are Internet, new energy and Space technology. Although we have one different, we still have two in common.
He got great success on PayPal, but he didn't persist on that, which he miss a great opportunity to develop a new commercialization of the Internet. Alibaba developed this idea with ALI-PAY, which it became the new way of Online payment and investment in present.
Mr. Musk started his TESLA company and also got a great success. I also admitted this company has brilliant future. However, I believed TESLA has been over-estimated.
I have three reasons.
Firstly, the TESLA has difficulty on productivity and cost. By the end of 2013, the total productivity of TESLA is only round 22000 (Green Car Report), which is far more less than the Big automobile company. The total revenue is only 1.7 B USD, while the GM is 154 B, the Volkswagen is 84.3 B, and the Toyota is 67.07 B (Yahoo Finance). It is tough for TESLA to challenge the traditional automobile companies with one technology in few years. The cost of TESLA indicates that the model S and model X can not be a popular car in the market. Few people choose the TESLA as their first car or only car because they mostly treat TESLA an artifact or toy rather than a vehicle. The market share and the diversification of the product chain are the Achilles heel of the TESAL.
Secondly, the gross margin of the TESLA is only around 18%. As a luxury product, this gross margin can not be satisfied. This number also shows, the new energy technology is still not mature.
Thirdly, I think the other automobile companies is catching TESLA on the new energy technology. German and Japan are very competitive on their energy saving. They don't worry about the TESLA because its market share is too small to be a threat. In the long term, TESLA can hardly be the leader in the new energy technology area because GM, Volkswagen and TM have more capital on R&D and human resource.
As a conclusion, I believe the best time for TESLA is for next three year because this is the only time for TESLA to expand their market share, diversify its product chain and lower the cost with the help of it leading battery technology. The price of TESLA will hit the top 350 USD after the Model X comes up by the year of 2015. And then, with the more competitive of the automobile industry, TESLA will stay in the minority of population or Luxury brand, which is similar to Hummer, Maserati or Bentley. The reasonable price of TESLA will be around 150 USD.
P.S. Elon Musk is called Iron Man. Can he lead another innovation revolution that can excess the other company 10 or more years?
2014年1月19日星期日
Several Industries and reasons
In the last article, I have talked about the principle of my investment philosophy. It is a preliminary thought and will be improved continuously with the development of my practice.
In this article, I would like to talk about which industries I am interested in and which is out of my attention.
Firstly, new energy will be exactly in my list. The reason is simple, human desperately needs that. The new energy is highly depending on innovation and it will be access to the end-user directly as long as it has proper cost. In my opinion, the most difficulty of a technique is commercialization, while the new energy didn't have that problem because it has had sophisticated commercialization format so long as the innovation can lower the cost and expand the production.
Secondly, Internet is full of opportunities. However, it is less attractive than the new energy because the Internet technology still depends on the traditional commercialization, which is the advertisement. Without new innovation on the commercialization format, the market average return will converge and only few big companies will survive from the market integration. Presently, only Google, Amazon and Apple developed new commercialization successfully, which the content became the core of profitability instead advertisement. Hence, I believe that the google play, kindle series and apply store have brilliant future. They totally integrate the industrial chain to combine the innovators and producers, and directly to connect them to the end-users. It has successfully created a quick circulation of knowledge-commercialization-knowledge.
Thirdly, I would like to say the biotechnology in agriculture and pharmaceutical industry. Although it seems like the transgenosis technology didn't have a good reputation, it has powerful productivity and better quality. The advantage of amazing low cost will crash the traditional prejudice in the long term. On the other side, the transgenosis can take around to make intermediate products first and then to the end-products. The transgenosis technology has potential application on meat, grains and even fish industry. For the pharmaceutical industry, biotechnology has even more opportunities than in agriculture. However, it has also risk, which the extreme organization, like PETA, will threaten the experiments and application.
After discussing the three clusters I am interested in, I would like to mention one thing I am afraid of, which is gold. I don't like any asset that can not create the cash flow depending on production. Gold is fully built by traditional idea, which is pretty risky. Sure, it probably can make money, but I don't think I am the one who is the winner in the gold market. In the modeling, I only treat the gold index as the input data rather than output because I don't believe anyone can predict the thousands of investors' confidence and ideas accurately. Gold price can determined many things but I don't know what factors can determine gold.
Enough today.
In this article, I would like to talk about which industries I am interested in and which is out of my attention.
Firstly, new energy will be exactly in my list. The reason is simple, human desperately needs that. The new energy is highly depending on innovation and it will be access to the end-user directly as long as it has proper cost. In my opinion, the most difficulty of a technique is commercialization, while the new energy didn't have that problem because it has had sophisticated commercialization format so long as the innovation can lower the cost and expand the production.
Secondly, Internet is full of opportunities. However, it is less attractive than the new energy because the Internet technology still depends on the traditional commercialization, which is the advertisement. Without new innovation on the commercialization format, the market average return will converge and only few big companies will survive from the market integration. Presently, only Google, Amazon and Apple developed new commercialization successfully, which the content became the core of profitability instead advertisement. Hence, I believe that the google play, kindle series and apply store have brilliant future. They totally integrate the industrial chain to combine the innovators and producers, and directly to connect them to the end-users. It has successfully created a quick circulation of knowledge-commercialization-knowledge.
Thirdly, I would like to say the biotechnology in agriculture and pharmaceutical industry. Although it seems like the transgenosis technology didn't have a good reputation, it has powerful productivity and better quality. The advantage of amazing low cost will crash the traditional prejudice in the long term. On the other side, the transgenosis can take around to make intermediate products first and then to the end-products. The transgenosis technology has potential application on meat, grains and even fish industry. For the pharmaceutical industry, biotechnology has even more opportunities than in agriculture. However, it has also risk, which the extreme organization, like PETA, will threaten the experiments and application.
After discussing the three clusters I am interested in, I would like to mention one thing I am afraid of, which is gold. I don't like any asset that can not create the cash flow depending on production. Gold is fully built by traditional idea, which is pretty risky. Sure, it probably can make money, but I don't think I am the one who is the winner in the gold market. In the modeling, I only treat the gold index as the input data rather than output because I don't believe anyone can predict the thousands of investors' confidence and ideas accurately. Gold price can determined many things but I don't know what factors can determine gold.
Enough today.
2014年1月17日星期五
First blog in English
I actually had a habit to write blogs. However, this time, I decide to try to write blogs in English. Two purpose: 1. Practice my English writing; 2. practice my financial knowledge.
The topic of my blog will focus on financial analysis, including company analysis, stock analysis, industry analysis, market analysis, and risk management. I mostly wrote it to myself. And each of my blog won't be too long because I want to keep it for long.
As the first blog, I would like to write something general.
Today's market is totally different from the market 50 years ago, because the technology has changed. Always, an age of transition comes out of the great technology revolution. The current market is the result of the information technology, while that age of 50 years ago is the product integration age. Thus, I would like to call todays' business is information-integration age.
50 years ago, the information cost is too large to be managed by one certain company. Hence, the company has limited scale and shared the information cost through division. the only way to improve the economic profit is integrating the production process, which is the economic of scale of production process. They named the integration method as industry chain integration, which, basically, it should have physical entity.
Presently, it is different. The information is the core because it is the fundamental of the knowledge and the knowledge is the origin of the profit. It is not a hot topic to talk about pipeline-style innovation, while the point is concentrating on the R&D and customer sides rather than production process. If we used the old industry chain theory to explain this idea, it fits the smiling curve, which is the value is created from R&D and end market instead of producing. That is also the reason why the product process has been shifted to Japan and Korea first, then to China and India.
The merge also follows this principle that big company will enjoy the low market cost and internalize the outside cost, because it is cheap. They will acquire the company that is full of information base and probably can create knowledge, like Google acquired Nest.
Therefore, I would like to set two principles in my investment philosophy,
1. Only analyze the industry that work with the information that can reduce the information cost.
2. Only analyze the company that focus on either the R&D or end market or both.
The topic of my blog will focus on financial analysis, including company analysis, stock analysis, industry analysis, market analysis, and risk management. I mostly wrote it to myself. And each of my blog won't be too long because I want to keep it for long.
As the first blog, I would like to write something general.
Today's market is totally different from the market 50 years ago, because the technology has changed. Always, an age of transition comes out of the great technology revolution. The current market is the result of the information technology, while that age of 50 years ago is the product integration age. Thus, I would like to call todays' business is information-integration age.
50 years ago, the information cost is too large to be managed by one certain company. Hence, the company has limited scale and shared the information cost through division. the only way to improve the economic profit is integrating the production process, which is the economic of scale of production process. They named the integration method as industry chain integration, which, basically, it should have physical entity.
Presently, it is different. The information is the core because it is the fundamental of the knowledge and the knowledge is the origin of the profit. It is not a hot topic to talk about pipeline-style innovation, while the point is concentrating on the R&D and customer sides rather than production process. If we used the old industry chain theory to explain this idea, it fits the smiling curve, which is the value is created from R&D and end market instead of producing. That is also the reason why the product process has been shifted to Japan and Korea first, then to China and India.
The merge also follows this principle that big company will enjoy the low market cost and internalize the outside cost, because it is cheap. They will acquire the company that is full of information base and probably can create knowledge, like Google acquired Nest.
Therefore, I would like to set two principles in my investment philosophy,
1. Only analyze the industry that work with the information that can reduce the information cost.
2. Only analyze the company that focus on either the R&D or end market or both.
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