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  • Featured | Doddsville
    investing in Apple and the future of cars You can download the podcast here or listen below By Jason Prowd II Also posted in Doddsville Podcast Comments 14 Doddsville podcast 1 March 2012 March 1 2012 4 35 pm Join our analysts as they go fishing in the flood of income securities discuss the case of subsidies and the most controversial long or short ever smoking By Jason Prowd II Also posted in Doddsville Podcast Comments 1 Intelligent Investor Analysts Nathan Bell research director works alongside Gareth Brown James Greenhalgh Gaurav Sodhi and Jason Prowd This blog is where they share their thoughts and gather feedback about their ASX research at Intelligent Investor Search Connect with us Recent Posts The origins of Passport Capital 15 568 days to the end of oil The worst deal I ve ever seen Doddsville podcast 20 December 2012 Best books of 2012 Recent Comments James Carlisle II commented on 15 568 days to the end of oil Samson commented on Harvey Norman crisis approaching David commented on 15 568 days to the end of oil James Carlisle II commented on 15 568 days to the end of oil Nick Earls commented on 15 568 days to the end of oil Links Bristlemouth Gravy Train How To Invest Intelligent Investor Value Fund Walnut Report Authors Select Category Banking 3 Currency 5 Debt 9 Doddsville Podcast 36 Featured 4 Gareth Brown 48 Gaurav Sodhi 67 Greg Hoffman 27 International investing 10 James Carlisle 3 James Greenhalgh 56 Jason Prowd 18 John Addis 3 Lists 3 Macro environment 16 Management 21 Nathan Bell 43 Opinion 42 Portfolio management 7 Property 1 psychology 8 Resources 21 retail 11 Review 2 Stocks 58 Strategy 9 Telecommunications 1 Tim Searles 1 Twitter Wrap 25 Uncategorized 11 Value investing theory 7

    Original URL path: http://blog.intelligentinvestor.com.au/doddsville/category/featured/ (2013-02-02)
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  • Gaurav Sodhi | Doddsville
    Oil aren t the giants they pretend to be explains Gaurav Sodhi By Gaurav Sodhi TII Also posted in Resources Stocks Tagged Exxon national oil companies oil company Comments 7 Lessons from Uniqlo October 4 2012 10 22 am As Japanese clothing brand Uniqlo demonstrates ignoring businesses because they operate in slow growing economies can be a mistake By Gaurav Sodhi TII Also posted in retail Stocks Tagged fast retail Japan retail Uniqlo Comments 5 The Australian dollar Still overvalued September 20 2012 1 49 pm The resources boom is over but the currency remains stubbornly high Will it stay that way By Gaurav Sodhi TII Also posted in Currency Tagged Australian dollar currency resources boom Comments 15 The demise of the LME August 28 2012 2 49 pm The London Metal Exchange used to be at the core of global metal supply Not anymore By Gaurav Sodhi TII Also posted in Resources Tagged China copper LME Comments 1 Slowing Canada s housing market August 7 2012 12 29 pm Canada is actively trying to slow its housing market without using interest rates Australia take note By Gaurav Sodhi TII Also posted in Macro environment Tagged Australia Canada housing market Comments 9 Older posts Intelligent Investor Analysts Nathan Bell research director works alongside Gareth Brown James Greenhalgh Gaurav Sodhi and Jason Prowd This blog is where they share their thoughts and gather feedback about their ASX research at Intelligent Investor Search Connect with us Recent Posts The origins of Passport Capital 15 568 days to the end of oil The worst deal I ve ever seen Doddsville podcast 20 December 2012 Best books of 2012 Recent Comments James Carlisle II commented on 15 568 days to the end of oil Samson commented on Harvey Norman crisis approaching David commented on

    Original URL path: http://blog.intelligentinvestor.com.au/doddsville/category/gaurav-sodhi/ (2013-02-02)
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  • Doddsville podcast - 20 December 2012 | Doddsville
    F 1 9 20 1166 please wait Rating 5 0 5 3 votes cast Doddsville podcast 20 December 2012 5 0 out of 5 based on 3 ratings This entry was written by James Greenhalgh TII posted on at 11 52 am filed under Doddsville Podcast Bookmark the permalink Follow any comments here with the RSS feed for this post Post a comment or leave a trackback Trackback URL Best books of 2012 Previous Entry The worst deal I ve ever seen Next Entry Leave a Comment Your email is never shared Required fields are marked Your Name Email Website Optional Your Comment Click to cancel reply Intelligent Investor Analysts Nathan Bell research director works alongside Gareth Brown James Greenhalgh Gaurav Sodhi and Jason Prowd This blog is where they share their thoughts and gather feedback about their ASX research at Intelligent Investor Search Connect with us Recent Posts The origins of Passport Capital 15 568 days to the end of oil The worst deal I ve ever seen Doddsville podcast 20 December 2012 Best books of 2012 Recent Comments James Carlisle II commented on 15 568 days to the end of oil Samson commented on Harvey Norman crisis approaching David commented on 15 568 days to the end of oil James Carlisle II commented on 15 568 days to the end of oil Nick Earls commented on 15 568 days to the end of oil Links Bristlemouth Gravy Train How To Invest Intelligent Investor Value Fund Walnut Report Authors Select Category Banking 3 Currency 5 Debt 9 Doddsville Podcast 36 Featured 4 Gareth Brown 48 Gaurav Sodhi 67 Greg Hoffman 27 International investing 10 James Carlisle 3 James Greenhalgh 56 Jason Prowd 18 John Addis 3 Lists 3 Macro environment 16 Management 21 Nathan Bell 43 Opinion 42 Portfolio

    Original URL path: http://blog.intelligentinvestor.com.au/doddsville/doddsville-podcast-20-december-2012/ (2013-02-02)
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  • Harvey Norman: crisis approaching? | Doddsville
    the value acquired Well I guess each case has to be taken on its own merits Didn t ARB do something similar not so long ago We can t apply blanket rules One thing I can tell you for sure is that if your measuring the value to remaining shareholders by spikes in shareprices you re probably on the wrong tram Ross said Posted March 8 2012 at 7 24 pm FYI HVN just had a closing down sale on one of its two Canberra stores Reply Peter said Posted March 8 2012 at 9 11 pm Gerry Harvey can never compete on price against the internet so why bother He only ends up slashing his margins Where he has an advantage over the internet and where he can win is customer service and customer experience E G exclusive VIP nights for regular customers free delivery installation of large items as standard free extended warranty and no excuses free gift card on a customers birthday etc i e make the customer feel important but don t compete against the internet on price Reply Colin Reply March 8th 2012 at 11 49 pm I agree but customer service is not something HVN is known for I have had some pretty ordinary experiences in their stores and yet to meet anyone with a good experience Their salesmen continually lie to you especially about how they supposedly can t even buy their product for less than the extra special price they offer you HVN have had it too good for too long ripping off unsuspecting customers Today s shoppers thanks to the internet know exactly what they should be paying HVN won t go away overnight but its not a stock that I would want to retain in my portfolio Reply naomi Reply March 11th 2012 at 1 15 pm to do this he probably needs to shut a lot more marginal stores and just concentrate on the best ones Reply Graeme Cant Reply March 12th 2012 at 5 07 pm I absolutely agree I have never believed the buy HVN story because it conflicts so completely with my own experience They have never been the cheapest on anything I ve wanted to buy and I outfitted a completely new house in 1997 and the in store experience reflects the dog eat dog staffing model Many years ago I worked for Norman Ross for a short period That s where I first encountered the dog eat dog salesman model The aim was to make the sale and then brush the dirt off your shoes and never see that customer again No salesman thought it worth spending time with a customer s problem if you had bought it from another salesman It all came back to me the first time I entered a HVN store and recognised the atmosphere on the floor The HVN store and selling model is a 1970 model and it s stopped working with 2010 customers Get out now It s not going to get better Reply Jon said Posted March 9 2012 at 10 46 am HVN online offering is pathetic there is a reason they are not getting many sales A quick comparison taking the first product i saw on the site a nokia phone HVN had it for 650 Mobicity Aus based had it for 450 Reply Glenn G said Posted March 9 2012 at 12 02 pm The majority of their business is 2 client types Baby Boomers who are not confident shopping online so shop with a brand they know People who buy on interest free Only invest if you think those are a long term source of high margin sales Reply Mike said Posted March 9 2012 at 12 03 pm The more I ve looked at Harvey Norman the less I ve liked the business and sold out back in 2009 As I see it Havery Norman should stop trying to compete with everyone on computers IT audio and home entertainment and go back to focusing on home appliances white goods e g fridges ovens vacuums toasters kettles home furniture bedding etc The company is very good at selling those types of products and they compliment each other Trying to compete by suggesting that HVN will sell products below cost to be the last man standing won t work as its costs are too high compared to online stores and JB HiFi Officeworks etc Officeworks is owned by Wesfarmers who also could outlast HVN HVN s competitors will likely be able to keep going under that scenario for much longer than I think Gerry envisages Its simply good business practise Stop selling products that have little or no margin and go back to basics cheers mike Reply Steve Birdsall Reply March 15th 2012 at 2 10 pm Two words Bing Lee Reply Derek said Posted March 9 2012 at 1 53 pm Through the 80 s and 90 s Gerry Harvey was in my view the best retailer in Australia and led many retail trends with HVN Since then he has lost the plot I sold out of HVN for 3 60 back in 2001 and apart from the rise with the tide in 2007 the share price has gone nowhere since then and not much in the way of dividends to boot HVN is now so wrong in so many ways Gerry should step down to make way for someone with some idea of what is going on in the world of retail and his wife as MD Perhaps she is terrific just like the Murdoch kids just happens to be his wife Apart from no ideas about online how about stopping being all retail things to all men have a good look at the competition JB Good Guys let alone basic customer service I wonder if Gerry has actually been in one of his own stores for a long time Pity there s little shorting potential there Reply John S said Posted March 12 2012 at 1 03 pm My take on the HVN property portfolio is it was more of a protection in the good times i e protecting the business from rapidly increasing rents than it is if we are in for a protracted retail downturn If retail conditions get worse from here doesn t it just make necessary adjustments harder we should close this store but we can t because the property will then be worth next to nothing Reply Damien Parker said Posted March 12 2012 at 1 50 pm GH is a victim of the franchise model He waited too long to make changes and wilted in the face of sustained franchisee pressure to preserve a business model that saw the internet as direct competition to franchisees Plus he is a classic baby boomer property fanatic So the franchisees provided the easy front line sales troops who also rented his properties To change this is akin to a double strke out which is why he vacillated Had GH made his move ten years ago and become serious about selling to the world via the internet and not just Ireland and central Europe his pain would be much easier today Norstram is a good example and there are others but it seems there is a 10 year growth curve GH should retire smell the roses and Katie woud be best to accompany him Talk to Dick Smith about what good he can do with his vast fortune Reply Eswaran said Posted March 12 2012 at 6 15 pm Just reading some these posts and the negativity oozes This feels almost certainly closer to a buy then a sell Most of these comments do not relate to new issues with HVN They would have been more relevant and useful at a 5 dollar share price then down here Every Tom Dick and Harry are aware of these issues note from blogmaster financial advice edited out Reply Paul said Posted March 12 2012 at 8 14 pm I like Glenn G s comment If HVN has not already distinguished itself as a leader in customer service and company that cares about their customers well it s too late You would only buy into this company with the knowledge that future profits will decline and the price low enough that discounted future cashflow makes it worth it I have only liked HVN for its convenient locations and occasional sale items which they purchased in bulk I always know more about the product than the salesperson and there are items that are clearly marked up by a wide margin So only on sale items bulk items or those at the distributor s set price are worth buying I think it was in a II video interview that Gerry Harvey was saying something like customer s don t understand how much better sound quality you can get from Monster Cables extolling the need for salespeople What he doesn t understand it the whole internet is full of jokes about over priced rip off Monster Cables that don t perform any better in scientific tests than your cheap Chinese made cables He doesn t understand the internet and how knowledgeable people can become on a product decision because of it He also doesn t care about the customer He is always protecting his own interests like opposing the expansion of Supacenta in Sydney claiming the car traffic would be unmanageable which allowed more furniture and electrical stores open up and compete with HVN Like opposing internet sales While a bit of self interest in a CEO may be good for a company s profits as I still wait for a few cents from the liquidator from my Great Southern Plantations TREES2 investment in the end if a business gives it customers a really bad deal such as tax effective plantations that lose money a company will have no future revenue stream or backers when they need them most Reply Paul said Posted March 12 2012 at 9 34 pm You can t hang your hat on the property portfolio as the only tenant they have is themselves who is going to rent these sites if the Harvey Norman business model no longer works Reply James Greenhalgh TII Reply March 13th 2012 at 9 09 am That s not strictly true It s not disclosed exactly what proportion of the company s property is rented to franchisees but there are a large number of third party tenants as well This number is increasing as Harvey Norman becomes much more of a property play in that it is developing bulky goods shopping centres such as Springvale in Victoria and Maroochydore in Queensland But yes if franchisees are suffering they are likely to seek rent reductions which will end up reducing those property values Reply Jason Prowd TII said Posted March 13 2012 at 7 35 am Interesting post JG Gerry Harvey s obviously feeling the pressure Here s a column he wrote for Business Spectator on why he gets online retailing http www businessspectator com au bs nsf Article Gerry Harvey responds online retail Harvey Norman pd20120313 SBQ7M OpenDocument src sph Reply Mars Reply March 13th 2012 at 4 33 pm Fascinating stuff There is no doubt reason for concern and caution is warranted But it s become so trendy to bash Harvey Norman and indded Gerry himself as Eswaran says that I just can t help but start salivating The last time everyone jumped on the the death of a major retailer bandwagon in Australia largely on the grounds that they didn t get the internet guess what subsequently happened anyone remember Flight Centre Now to blindly assume that Harvey Norman will mirror Flight Centre is not particularly rational granted But I just can t help backing the independent minded outspoken types with all they re foibles And granted Gerry is no saint For me however the greater sin is to behave like most polyte corporate lemmings and that means to follow the institutional imperative behave without conviction pretend you care while all the while you are milking the business with as lucrative a package as you can extract while you can extract it Reply Colin said Posted March 13 2012 at 2 52 pm I have to question the wisdom of GH s decision making I live in an area of relatively small population and little growth to go with it There is high unemployment Most of the large industries have shut down and others are under threat Yet as I write the bulldozers are busy carving out a brand new HVN Homemaker Centre There must have been a business case to support this development but I can t imagine what it would be Reply WB said Posted March 14 2012 at 2 28 am Harvey Norman is a furniture and white goods F W retailer that expanded successfully into computers TV s and other consumer electronics CTE In the last decade it has added property development PD into the mix It is clear that the CTE part of this business is facing problems The double whammy of price deflation and margin compression from internet competition is killing this part of the business But the long term outlook for the rest of his business has never looked better Over the last year Australia has been going through a big downturn in discretionary spending and this has been hitting Harvey Norman s F W business But this part of the business is not going away and in fact its value probably increased this year despite the drop in profits And if more furniture retailer s go out of business its value will go up further and will become evident when discretionary spending returns Despite the problems with CTE it still has value in a Harvey Norman store When you walk into a Harvey Norman store you normally have to walk through the larger F W to get to the smaller CTE section And because the CTE business is high volume the F W gets a lot of free traffic that a normal F W business would not normally get This is key point that Harvey Norman franchisee s have found out the hard way when they have decided to go out and sell furniture on their own And then there is the property development section which Harvey Norman is getting better and better at Its joint venture with IKEA was a great development And Harvey Norman can always tenant their developments even if their CTE business is dead as many people are predicting There has also been recent comparisons of Harvey Norman to Sears Holdings and Best Buy They are unfair comparisons Firstly Gerry Harvey is a retailer Eddie Lambert is not If you walk into a Sears store it is perfectly obvious They are dark the stock is old and the layout is a dogs breakfast And with Best Buy its a pure consumer electronics company and so should be compared to JB HiFi and Dick Smith not Harvey Norman There s not doubt that many of the Harvey Norman s weaker franchisees will close up shop Harvey Norman is not the business it was in 2007 but if you put the consumer electronics business to one side you will find the best furniture and white goods franchise in the country that is expanding internationally backed by an expanding property portfolio that is worth more than the company is selling for run by one of the best retailers Australia has produced Go Harvey Reply Glenn G said Posted March 14 2012 at 8 39 am GH isn t some cagey old guy that knows better that article just shows that he has no interest whatsoever in taking online seriously But why would he He needs to support the franchise model and has no interest butchering that to appease the analysts need for an online presence Comparisons to FLT are way off weren t aren t they getting a lot of their sales from the corporate world so the online threat just wasn t as big as people thought What is HVN s secret revenue stream property development When everyone on here would agree that Australian property is a simmering bubble Reply Mars Reply March 14th 2012 at 11 23 am Isn t hindsight great re FLT revenue from the corporate world Back when everyone was on the let s bash FLT bandwagon corporate travel wasn t as well established though it was well and trully on it s way Ironically corporate revenue has diminished as a percent of the whole as OS leisure travel has exploded in Australia Anyone that thinks there s no future in bricks and mortar for furniture and white goods is smoking different stuff from me Sure this wil be less valuable than consumer electronics were in their heyday Similarly anyone that thinks the value of HN s real estate will be worth much much less than what is stated on the books is making a bold assessment about the future Sure prudence would say that it s likely worth less as there will probably be some painful tenant re adjustments and it s only worth the cash flow it generates This was as true 2 years ago as it is today and it was as imprudent to assume book value then as it is now I m with WB go Harvey and bugger the fare weather friends and shareholders And may the Lemmings thrive for I m still hoping for cheaper HN stock Reply Steve Birdsall said Posted March 15 2012 at 2 04 pm It s not really just the Internet I remember the computer section at the Harvey Norman store at Warringah Mall in the mid 1990s where the very limited software range included obscure things like Microsoft Entertainment Packs always fully priced no matter how shop soiled or old they were Even back then it

    Original URL path: http://blog.intelligentinvestor.com.au/doddsville/harvey-norman-crisis-approaching/ (2013-02-02)
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  • Buy FKP | Doddsville
    5 based on 16 ratings This entry was written by Jason Prowd II posted on at 10 06 am filed under Jason Prowd Property Stocks and tagged Australian property FKP retirement property stockland Bookmark the permalink Follow any comments here with the RSS feed for this post Post a comment or leave a trackback Trackback URL Doddsville podcast 21 June 2012 Previous Entry Twitter Wrap 27th June 2012 Next Entry 23 Responses Add Yours Discussion Shay said Posted June 26 2012 at 11 44 am Hi Jason What were the main concerns of the other dragons Was it mostly around the rolling over of debt Why do you think this will be a concern I d agree on concerns about residential property and a severe downturn potentially hitting australia How comfortable are you that the assets are valued correctly I don t know much about this area and what regulations there are around proper asset valuation but I have seen it where in boom times valuers of residential property can overstate property valuations and banks are happy to ride along while the going is good I am thinking more of the irish property market here but I have seen it in Australia too Maybe this is related your concerns about rolling over the debt Cheers Reply Jason Prowd TII said Posted June 26 2012 at 5 55 pm Arvo Shay I d say the debt was the main concerned combined with inherent riskiness in development and retirement businesses But some of the other guys might want to comment for themselves On the valuation front I d say there s probably no way the assets are worth anything like what FKP is claiming and is why I ve adjusted them down to reflect more conservative assumptions I d say the most suspect part of the valuation is the development assets In really tough times prices of land and incomplete dwelling can get smashed see south east QLD for example I ve take a fairly big cut to the assets value but I certainly haven t been around to each and ever parcel of land not that you could anyway and had them valued Reply D said Posted June 26 2012 at 8 14 pm Well researched This looks like a cigar butt that may have a few puffs left Reply Jason Prowd TII Reply June 26th 2012 at 8 29 pm Thanks D Reply Smithers said Posted June 27 2012 at 12 26 am Going against the crowd is contrarian so what is it called when you go against the Dragon s Den Reply Jason Prowd TII Reply June 27th 2012 at 8 43 am Hmm I like the way you re thinking Smithers It s perhaps a tad cavalier We certainly all have different opinions on stocks I just thought it was worth sharing mine What are your thoughts on FKP Reply Smithers Reply June 27th 2012 at 10 04 am Cavalier is a great explanation after all they say differing opinions is what makes a market even if it is amongst experts for my thoughts on FKP I now actually have some thoughts on FKP and the whole retirement property industry which before both your reports here on Doddsville and II was zero This is why I love II because every single day you keep opening my eyes to new things and ideas when it comes to the ASX but the thing I most enjoyed is learning about quirky accounting when it comes to DMF contracts Reply Jason Prowd TII Reply June 27th 2012 at 10 20 am Pleased to hear you re finding II useful and enjoyable Dagz Moldovski said Posted June 28 2012 at 12 41 am A viewpoint is a viewpoint is a viewpoint care to respond on the following viewpoints JP Combine the fallout of Europe a slowing of production of industrial in China and US data up and down like a bride s nightie surely the forecast has to be to adopt a more cautious approach to capital investing We see this happening already in the resources sector Extend the flow on effect a bit further and by definition this will impact growth in civil infrastructure warehousing logistics and industrial property requirements hence stocks that are predominantly property centric which will inevitably lead to pressure being brought to bear on the domestic property market as a whole The other issue is the doubling of the withholding tax rate for managed investment trusts from 7 5 to 15 which commences this Sunday 1 7 12 Whilst far from a knock out blow for direct foreign investment the 180 conducted by the government on these tax rates is likely to see scepticism come from overseas investors specifically vis a vis the domestic political landscape and perhaps more importantly will possibly reduce our after tax returns relative to other countries Retirees are also living longer which adversely affects DMF forecasts FKP have not been all that sensible in the past with these forecasts and fears raised by savvy investors need to be appeased I d be increasing those discounts you applied from 14 upwards to say something more like 16 17 Reply Jason Prowd TII Reply June 28th 2012 at 8 40 am Dagz you make some really good points I agree that the outlook for property isn t great Indeed I m firmly in the camp of prices are likely to be lower but I m not a perma bear If we look to the US as an example during the GFC developers such as D R Horton Pulte Group and Lennar all suffered 50 write offs to their NTAs So a large fall in values is certainly not out of the question I also agree that FKP has been aggressive with DMF forecasts If they were adjusted up to say 16 I d knock perhaps another 150m 200m off the valuation This would put adjusted NTA a tad above the current price I d expect

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  • Computershare – how big is its moat? | Doddsville
    do you think Reply Jason Prowd II Reply July 4th 2012 at 7 52 am Thanks for the input John Reply craig said Posted July 3 2012 at 12 36 pm previously bought in April 2003 at 1 63 and sold in September 2007 at over 9 and the sell was probably an II recommendations the buy may have been was II around then continued analysis very reassuring and this business has improved lots since 2007 and buying at around 7 is very exciting things might get much bleaker and will be happy to buy at lower price A QBE analogy is bought all the way from 18 to 10 reached the portfolio limit so stopped buying Reply Jason Prowd II Reply July 4th 2012 at 7 49 am Certainly were since 1998 in fact I like how you re going about building a stake over time very sensible Reply Phil said Posted July 3 2012 at 8 50 pm Ive worked in a share registry and spent a bit of time reflecting on this issue when talking with shareholders on a day to day basis during my long days on the phone dealing with inbound phone issues The problems associated with switching registries are somewhat larger than they may seem from the outside I remember for example a level of historical data which was really difficult to access for shareholders from migrating registries including archived information Often the shareholder or representative may be left going from one registry to the other and back for historical information on cost base and outstanding dividends from years back This was further complicated in the case of a deceased estate where poor record keeping on behalf of the shareholder over the decades coupled with relatives who didn t know what they were doing magnified the problem I found getting shareholder info on corporate actions particularly difficult for those from other registries You need to remember a registry has a bunch of people on the phones taking inbound enquiries about countless issues for hundreds of companies and the smallest complication can cause a huge headache and affect the client companies reputation They understandably would resist this if it meant spending a few percent more on registry fees Reply Jason Prowd II Reply July 4th 2012 at 7 47 am Interesting thanks for the scuttlebutt Phil Reply John Reply July 6th 2012 at 1 29 pm Hi Phil It s great to hear scuttlebutt from an insider Reply JB said Posted July 3 2012 at 10 37 pm I tend to agree with II CPU appears to have a relatively wide moat however we are somewhat starved for choice here in Australia For sure you cannot compare the share registry provider with a global icon like Coke but investing here in Australia I ve recently opened the account on both CPU and ASX and will continue to build a position in these two business as prices are attractive I have long hoped that these two businesses would form part of my Australian portfolio as I consider them to be among the best placed businesses in Aus Now back to the overseas survival guide that I can put some cash towards the Coke s of our world Reply Jason Prowd II Reply July 4th 2012 at 7 46 am Definitely agree with that JB Also pleased to hear you enjoyed the overseas special report Reply Alistair said Posted July 4 2012 at 12 50 pm I totally get that CPU is a great business I can except that it has a wide moat But what I don t get at 17x earnings is where is the margin of safety How is this stock at this price considered a value stock I find it unlikely that Ben Graham or Warren Buffett would pay this price I wouldn t Reply Dave Reply July 4th 2012 at 4 34 pm 17 times normalised earnings over the business cycle or 17 x current earnings which one might suggest are at the bottom of the earnings cycle Reply Alistair Reply July 4th 2012 at 5 45 pm I haven t really done the maths on this one so excuse me if I m mistaken but my understanding is its trading at approx 17 time current earnings But if you are relying on the business cycle to improve earnings I think you are making precisely the kind of assumptions about future growth that a value investor should avoid Reply JohnC Reply July 4th 2012 at 10 21 pm What assumptions are these http www intelligentinvestor com au articles Computershare CPU Computershare Welcome the downturn cfm The cyclical lows in its business is actually part of its attraction for value investors http www intelligentinvestor com au articles Aristocrat Leisure ALL Aristocrat s turnaround jackpot cfm The prospect of a cyclical upturn in 2012 isn t new In Aristocrat out of luck from 26 Nov 10 we wrote Managing director Jamie Odell isn t expecting a cyclical upswing until 2012 and expects things to get worse before they get better While the share price has certainly got worse down 26 since then and 6 since 26 Aug 11 there are now more reasons for optimism in the US at least Dave Reply July 4th 2012 at 10 26 pm I personally disagree with this I consider myself a value investor through and through but am happy to pay for a bit of growth when I expect serious growth in earnings I guess we all have different thoughts on what constitutes a 50c dollar Alistair Reply July 5th 2012 at 9 14 am Dave and JohnC I can understand your views on CPU it is clearly a very strong company It is possible maybe even likely that this is a cyclical low and that their earnings will rebound But this is based on a blue sky view of CPU s future It doesn t leave much space for one of Nassim Taleb s Black Swans

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  • Marcus Padley responds | Doddsville
    is a misrepresentation and risked putting people off them who could be well served by them at the right price and it also painted everyone that had already committed as having been duped and a fool Idle stuff They deserved some push back And lets also keep this in perspective Its only TV its an entertainment even when it is finance Why else are so many people that can t tell the future still tolerated on the medium Because they are interesting controversial outrageous not because they are right Thanks for the forum opportunity Pleasure to cross swords albeit softly By the way there are some things you do in the Intelligent Investor that no one does as well I hope we are both an essential part of the stock market fabric even if we do do different things Lunch anytime Regards Marcus Padley Want to know what shares to buy hold or sell Why not sign up for a free trial with Intelligent Investor to find out VN F 1 9 20 1166 please wait Rating 4 4 5 36 votes cast Marcus Padley responds 4 4 out of 5 based on 36 ratings This entry was written by Jason Prowd II posted on at 8 00 am filed under Greg Hoffman Opinion and tagged income securities motes Bookmark the permalink Follow any comments here with the RSS feed for this post Post a comment or leave a trackback Trackback URL Harvey Norman crisis approaching Previous Entry Twitter Wrap 14 March 2012 Next Entry 8 Responses Add Yours Discussion Alvise Peggion said Posted March 9 2012 at 10 18 am I actually found out about the Intelligent Investor Service from Marcus Padley A few years ago he referred to the Intelligent Investor research the article about Valemus on Lateline Business Be friends and keep confronting each other Reply Michael said Posted March 9 2012 at 2 38 pm Marcus is entertaining to read and I feel I have learnt a lot from him Bravo for helping all sorts of investors to have the confidence to believe the sharemarket is worth struggling with Double that for II Marcus is wanted alive not dead Reply Karl Withakay said Posted March 9 2012 at 4 55 pm I too think it s awesome that Marcus has joined the debate I ve just finished reading Matthew Kidman s latest book Bulls Bears and a Croupier and learnt that the share market doesn t discriminate against anyone on how they go about making money and for that I would like to apologise for sounding like a complete dickhead in my previous comment over in the original blog post Taking my value investing blinkers off for a moment although it is the one and only way I know how to go about using the share market to my advantage although I completely agree with Greg with the original argument I can now come to respect your work and see how others who don t have

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  • A property crash? Don’t bet against it | Doddsville
    cause Widespread loan defaults occurred when honeymoon periods ended and borrowers found themselves paying much higher rates that they could not afford and were never going to be able to afford The widespread defaults flooded property markets with distressed sales which lead to rapid falls in property prices It was a very clear external cause and a few people saw it coming but unfortunately not enough There is a line of argument that goes something like this US property was overvalued and it crashed Australian property is also overvalued so it must crash as well Ian s article was pointing out that overvalued property doesn t always crash it can also decline slowly or stagnate and was looking for possible triggers for a crash in Australia like the widespread defaults in the US That seems to me to show a pretty good grasp of cause and effect Reply Jason Prowd TII Reply February 3rd 2012 at 2 38 pm I think that s an interesting point Dave But isn t holding your existing property effectively making a bet on housing prices if you view your home as an investment albeit a less leveraged one My primary fear around property is that the average Australian has a staggeringly high percentage of their total net worth invested in an asset class that depending on your view is either very overpriced or mildly overpriced Reply Dave Reply February 3rd 2012 at 3 09 pm Yes that is true but I don t view my existing property as an investment I view it as a home It keeps the rain off my head gives me somewhere to store all of the other stuff that I own and takes away any worries about needing to move when the landlord sells It will continue to those things very well no matter what happens to property prices I suspect that a lot of Australians take a similar view even if regular readers of this blog tend more towards family home as an investment Reply Jason Prowd TII Reply February 3rd 2012 at 3 25 pm Agreed I think that s a reasonable trade off to make There s obviously heaps of soft benefits for owning a house many of which you mentioned it is really a question of what those benefits are worth Making reasonably conservative assumptions today s property buyer needs prices to triple over the life of 25 30 year loan to break even If that doesn t happen which I think is reasonably likely you re effectively paying for the privilege of owning a home Is the benefit gained from not having to worry about moving etc worth 200 a week or 500 It s a really hard question to answer and a deeply personal one Dave Reply February 3rd 2012 at 4 03 pm Hi Jason Why do I need to break even on my home I don t expect to break even on my car my stereo my CD collection my clothes or any of the other things that I buy I buy them when I know that I can afford them and then I enjoy the use of them until they wear out and need to be replaced Why should my home be any different apart from taking longer to wear out than a pair of jeans Dave Matt Reply February 4th 2012 at 2 46 pm I agree with Dave I don t consider my home as an asset Also not looking at a 25 30 yr time frame to pay off the loan more like 10 11 John S Reply February 3rd 2012 at 6 07 pm Jason your numbers are looking at the position of someone buying in today s market with borrowed funds Looking at someone who has already paid off their home and that s still 32 6 of the population the position changes significantly If I sell my home and invest the proceeds I need to pay tax on the income before meeting my new rental expense Looking at a number of scenarios for my current house I d need to be able to buy it back in 10 years time for between 80 90 of its current value to break even from selling and renting for the next 10 years Even with their well publicised crash US property prices are up 35 in the last decade So I need to be betting on a property crash far more severe than the US experienced to sell I m happy to side with Dave and bet neither for nor against a property crash Reply Jason Prowd TII Reply February 6th 2012 at 8 41 am Thanks for the comments guys A couple of things Dave yep you re home doesn t need to break even I was just pointing out that there s a cost to owning a home one that is probably a lot higher than most realise John S Correct I was using numbers for today s buyer However even over a shorter time period with no debt and after paying tax many people would be up Of course as you ve indicated that s not always the case and it will depend on your personal tax rate yield on your current home and where you invest the proceeds For example in most cases if you re in the 45 tax bracket over 180k and invest your proceeds in cash then it s unlikely you d be able to cover your rent bills But that s probably reasonable considering they re investments with very different risk profiles cash is far less risky than property Also that scenario is probably one of the most unlikely only around 13 of households earn over 150K a year ABS 2010 so most would fall in a lower tax bracket Combined with an investment in a diverse group of cash stocks the situation starts to looks a bit better Let me explain with an example Assume you sell your home for 750 000 after costs and invest the proceed in a portfolio of cash plus shares than has a gross yield of 8 Income from the portfolio would be 60 000 Now assume this income is taxed at the 40 rate You re left with 36 000 or 692 a week to rent the home you just sold for 750 00 Or another way of putting it you can rent a property with a yield of 4 8 With Australian housing yields at between 4 5 RP Data 2011 depending on your locations property type etc this shouldn t be too difficult Plus you d own a portfolio of stocks plus cash that if selected correctly I d expect to increase in value over the decade or at least keep up with inflation To lose out in this scenario you d need company earnings to stagnate or fall and property prices to continue to rise I d suggest over a decade you re unlikely to get both Dave Reply February 7th 2012 at 9 22 am Hi Jason You re still looking at the family home as an investment but most people don t That means it is difficult if not impossible for you to understand the attitude that most people have to the property market and to the thought of selling their house and renting Of course there are big costs to owning a house Anyone who has a mortgage or has had a mortgage in the past knows that But that is the key to understanding the attitude of most people to the property market Most people really don t care about the property market at all The only thing they care about is being able to make the repayments on their mortgage so that they can keep their home and if they have already paid off their mortgage then they don t even care about that Suggest to them that they could be ahead financially if they sold their home and rented and they will think you are mad Why other reason apart from insanity would lead someone to sell a perfectly good home when they can still afford the repayments The only people who care about the property market are those who are intending to make money from buying and selling houses and those who view everything as an investment You and Gareth are clearly in the second group and you appear to assume that everyone else is as well That incorrect assumption makes a lot of your analysis meaningless Dave D B Reply February 7th 2012 at 10 38 am While im sure that most people dont look at the family home as an investment things that many people need to consider are How safe is my job Am i likely to need to move at a point in the future If the answer to these questions is not very yes Then you have no choice but to look at the family home as an investment If you lose your job its all well and good to say I can just sell the house But what happens if you have negative equity in your house as a result of a decline in prices If you have to move and cant get the price you are looking for then you will almost certainly be renting the place out which will be at the very crappy yields of 2 3 Neither of these situations could be considered good investments In Australia particularly at this point in time a significant percentage of the working population would need to answer these two questions as I have above I work in resources and certainly dont feel that my job is guaranteed Gareth Brown TII Reply February 7th 2012 at 10 00 pm Dave I m certainly not suggesting you sell your home that s your decision If I was in a similar situation there s no way I d consider selling and renting I m generally referring to the other assets in investors portfolios that are strongly correlated with property prices investment homes bank shares discretionary retailer shares etc I don t want to put people out of a home just warn them that the Australian economy is probably more heavily linked to property prices than most realise and I couldn t rule out substantial pain ahead I just wanted to make the point that unlike some commentators I can t rule out a crash and know if one does eventuate it will hurt mightily BTW your point on most house owners being price insensitive is true But this is the same as it ever was It hasn t stopped erratic cycles in the past and won t in the future Reply Guy said Posted February 3 2012 at 2 40 pm The big issue that non property market analysts always ignore is supply and demand Unlike the share market where people generally don t need to buy shares people need to live somewhere so they have to buy or rent If prices are depressed people may err towards buy if prices are high they have to rent which drives rental demand rental prices and yields Either way this drives the property market in an expanding population Unlike America which is very decentralised Australia is highly centralised which means that this supply demand behaviour is played out in our major cities and even on a city by city basis There are also supply demand dynamics within cities as people trade off travel time to work versus cost to live close And of course there are other issues like non recourse loans in America which provided incentives for people to bail out of their mortgages Issues like unemployment interest rates and even affordability effect the market but the largest underlying dynamic is supply and demand This provides a strong negative feedback mechanism to property market price movements which is absent in the share market which is full of positive feedback mechanisms I really find the naive application of P E ratio style comparisons with the property market quite unhelpful Particularly those that accompany the property market collapse headlines I would also point out that as a long term Intelligent Investor member and a long term property investor with somewhat of a foot in both camps I can say that my property portfolio has produced far more consistent and substantial gains for me over the years And the property advisers that I use have a much better track record like 100 Maybe you guys should stick to your knitting Guy Superannuation funds need to buy shares Reply Al in Brisbane Reply February 3rd 2012 at 4 34 pm Guy I disagree with your points I think the central problem with your analysis is that you haven t fully unpacked the idea of supply and demand and you haven t taken into consideration the effect of credit on housing Firstly demand is not made of the number of people who would like to buy a house Demand is made of the number of people who would like to buy a house and who have sufficient bank credit The issue of credit issuance is central to housing prices As credit is shrinking in many major economies right now demand is shrinking with it This is reflected in the fall in house prices nationally over the past year for more evidence look at the Macrobusiness website Further affordability is absolutely central to house prices The very reason housing bubbles have to pop is because credit pumps up the cost of housing beyond that which the average person can reasonable afford With regard to property investors if they are allocating their capital on a rational basis P E is a very valid concern As Steve Johnson says without major capital gains why would you invest your hard earned without sufficient return As for your property investments providing more investment gains that is because we have soon a boom in housing credit issuance over the last 30 years As they say investment genius is a rising market I think Intelligent Investor should stick to any knitting where they can provide thoughful analysis This article has done so Carry on Intelligent Investor Reply Guy Reply February 3rd 2012 at 5 20 pm Al Firstly demand is not made of the number of people who would like to buy a house Demand is made of the number of people who would like to buy a house and who have sufficient bank credit Or they have to rent so someone buys a house for them or they live somewhere else which is not as easy in Aus as it is in USA The issue of credit issuance is central to housing prices Further affordability is absolutely central to house prices I disagree obviously I suggest these play a part but less than supply and demand which underpins the market The demand in Sydney is far outstripping supply So even if many people go live in Adelaide there is still an undersupply So any price drop is quickly taken up by pent up demand The very reason housing bubbles have to pop is The term housing bubble is very populist House prices in Sydney are below the long term trend I suggest to you that we are not in a bubble but have been in a period of stagnation for some years It is helpful to look at property or any price inflation on logarithmic scales With regard to property investors if they are allocating their capital on a rational basis P E is a very valid concern The strategy for property investment is in fact to allocate someone else s capital If borrow 80 which is reasonable for property but not for shares then my yield on capital invested is rather higher than you think But yes you only do it for capital gains If there were no capital gains then you would not do so But then if there were no capital gains rents would be twice what they are now so the yield improves Reply Geoff Reply February 4th 2012 at 9 08 am Al I suggest Guy is right in his more careful definition of demand We regularly read that demand for housing is outstripping supply but that just means that lots more people want to buy or rent for that matter But take note that we are not seeing masses of people sleeping in the streets not to ignore those poor souls who are truly homeless So where is this excess demand It s staying at home with mum dad or batching with friends slightly expanding the number of persons per dwelling With bank credit contracting a very novel circumstance in the Australian scene genuine housing demand will surely contract and with it house prices ericskeric Reply February 5th 2012 at 11 50 am Steve Keen s whole argument about the property bubble is based on availability of credit In one sense he is absolutely right Imagine a world where credit availability is reduced to a LVR of 50 What do you think will happen to property values They would crash Don t also forget that demand for rental properties is elastic My next door neighbour s son just moved back home That s one more rental property on the market Check out the macrobusiness website This topic has been covered ad nauseum from every angle supply demand affordability planning restrictions land bank development and release economic rent modelling overseas demand credit availability cost of ownership interest rates investor profile and drivers for investment and so on Lets move on from this topic Phil O Reply February 5th 2012 at 11 17 pm No supply demand equation can cause property to be worth infinity There s a price that makes sense and a price that doesnt Reply Jacky said Posted February 3 2012 at 4 30 pm I have been doing some research of the

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