Har poker likheter med investering?

David Einhorn, förvaltare av Green-light Capital, brukar jämföra investeringsprocessen med pokerspel. Nedan återges hur han menar:

"Investing and poker require similar skills.

Different people approach poker different ways. Loose aggressive types play lots of hands – virtually any two cards – and try to win lots of small pots. They are the day traders of the poker tables. 

Others play any Ace or any King or any two high cards. They play too many hands, but don’t play them well. These folks can do fine for a while, but get outplayed after the flop by the loose aggressive types who eventually wear them down so that they wind up in a desperate spot playing a decent hand against a strong hand for the remainder of their chips. I would compare them to long-only closet indexers who trade too much. 

Then there are the rocks. These folks sit around waiting for premium hands – high pocket pairs or an Ace, King. They fold and they fold and they fold. They are going to wait until they know they have a huge advantage. Then they bet as much as they can. It is very hard to beat a player like this. They can last a long time. Once people figure them out, nobody will play them when they do play. So they don’t get the chance to get enough chips in when they have a large advantage. Could this be what is becoming of Berkshire Hathaway?

I will tell you my poker style. It is close to the patient players waiting for a big advantage. I don’t play a lot of hands. But I don’t just wait for the perfect hand. They don’t come up often enough. I try to pick out one or two people at the table I want to play against or who I sense don’t want to play against me. When the situation feels right, I put in a big, aggressive raise with a marginal holding. 

It is very hard to describe how I know the “feel” and sometimes I get it completely wrong. But to do well in a poker tournament, you have to recognize a few non-traditional opportunities and you need to get people to sometimes fold the better hand. 

I think we invest similarly. By this I mean that most of our investing lines up nicely in the disciplined, traditional value camp – very low multiples of book value, revenues, earnings, etc., but occasionally we are opportunistic and invest in situations that are difficult to justify under traditional criteria but for one reason or another we believe to be better situations than they first appear.

People ask me “Is poker luck?” and “Is investing luck?”

The answer is, not at all. But sample sizes matter. On any given day a good investor or a good poker player can lose money. Any stock investment can turn out to be a loser no matter how large the edge appears. Same for a poker hand. One poker tournament isn’t very different from a coin-flipping contest and neither is six months of investment results.

On that basis luck plays a role. But over time – over thousands of hands against a variety of players and over hundreds of investments in a variety of market environments – skill wins out."

M.a.o. under korta perioder kan man vinna enbart på tur, men i det långa loppen krävs det skicklighet både inom poker som inom investeringar. Bida sin tid tills man har oddsen på sin sida och att satsa kapital i relation till hur säker en hand/investering är verkar vara ett recept som leder till framgång både inom poker som investeringar. Man kan dock göra allting rätt men ändå hamna fel vid enstaka tillfällen, men i det långa loppet så bör man lyckas bättre genom att hålla fokus på den långsiktiga processen.

Det jag känner Einhorn inte får med i ovanstående jämförelse är att investeringar, till skillnad från poker, inte är ett s.k. nollsummespel där den enes död är den andres bröd. Enligt mig så kan alla få till en "vinst" på sina investeringar på längre sikt genom att ta del av bolagens vinster. Antingen genom utdelningar eller genom att bolagen bygger upp värden internt. Det gäller dock då att inte falla i allt för många och dyrbara fallgropar under tidens gång. 

Vad är din syn på ovanstående?

En mer nyanserad bild av ROE

ROE (Return on Equity) eller avkastning på eget kapital brukar användas för att se hur pass väl ett bolag genererar avkastning. Naturligtvis måste man ta hänsyn till skuldsättningen också då ett högre ROE kan åstadkommas genom ökad belåningen. Ett bolag med låg skuldsättningen men som ändock lyckas ha en hög ROE är generellt ett attraktivt investeringsobjekt då det tyder på att bolaget "har något" i sin affärsmodell utöver det vanliga.

Ihållande högt ROE indikerar också att bolaget lyckas förvalta de vinstmedel man behåller inom bolaget på ett bra sätt. Det är ju också det man vill se hos bolag, att de enbart behåller den mängd kapital som de kan förränta på ett bra sätt. Allt annat bör ju delas ut eller användas till återköp (om gynnsamt) hellre än förslösas på investeringar som genererar dålig avkastning.

David Einhorn, förvaltare av Greenlight Capital och författare (tillsammans med Joel Greenblatt) till boken Fooling some of the people all of the time, lyfter dock fram en del saker kring ROE som man i första hand kanske inte tänker på. Nedan följer hans tankegångar:

"My two cents on ROEs is that there are two types of businesses: there are capital intensive businesses and non-capital intensive business. Capital in this definition is both fixed assets and working capital. 

I define a capital intensive business as a business where the size of the business is limited by the amount of capital invested in it. In these businesses, growth requires another plant, a distribution center, a retail outlet or simply capital to fund growing accounts receivable or inventory. Examples include almost all traditional manufacturing companies, distribution companies, most financial institutions and retailers.
 
I define non-capital intensive businesses as businesses where growth is limited by things other than capital. Generally, this means intellectual capital or human resources. Examples of intellectual capital are in the pharmaceutical, computer software industries and even some consumer goods like Coke, which rely on brand equity rather than shareholders equity. For example, drug companies are generally limited by the composition of their patent portfolios rather than by their raw manufacturing capacity. Human resource companies are the ones known for the “business going up and down the elevator” every day. Most service companies qualify, including almost any company that sells labor whether it be nurses, construction workers or consultants.

I believe that it is irrelevant to worry about ROE or marginal return on capital in non-capital intensive businesses. If Coke or Pfizer had twice as many manufacturing plants, the incremental sales would be minimal. If Greenlight Capital – and here I mean the management company that receives the fees, and not the funds themselves – had twice as many computers and conference room tables we wouldn’t earn twice the fees…in fact, they probably wouldn’t increase at all.

When the capital doesn’t add to the returns, then ROE doesn’t matter. It follows from this that in non-capital intensive businesses the price-to-book value ratio is irrelevant. The equity of the company in the form of intellectual property, human capital or brand equity is not reflected on the balance sheet. All that matters is how long, sustainable or even improvable the company’s competitive advantage is, whether it is intellectual property, human resources or market position.

For these companies the “reinvestment” question becomes what do they do with the cash. Do they return it to shareholders? Or do they do something worse with the cash? Think of all the beautiful non-capital intensive businesses that have either bought or entered capital intensive areas…mostly because their core business generated more profits than they knew what to do with.

A current example is the investment banks. Think about investment banking. It should be a wonderful non-capital intensive business. People go up the elevator and generate fees. Fees for corporate finance advice. Fees for raising capital. The top firms also benefit from their brand equity as companies actually measure their status by the perceived brand value of their financial advisors. They get still more fees for assisting buy-side customers to execute transactions in the capital markets and serving as custodians for their assets. None of this requires a lot of capital. From there, they can generate more revenue by facilitating customer orders, by committing some capital and by lending them money. So the investment banks become a bit more capital intensive. This has evolved. Next the banks enter proprietary trading and investing – generally in everything from short-term trades in liquid securities to merchant banking or private equity efforts. All that cash flow from the great non-capital intensive businesses gets sucked into ever growing balance sheets. Before you know it, the investment banks are holding on-balance-sheet assets of 30x their equity in addition to tons of off-balance-sheet swaps and derivatives.

What does all this capital-intensive activity do? It drives down the ROEs. Sure the ROEs still seem good at around 15-20%. But when you consider that underneath all the capital intensive stuff is a wonderful non-capital intensive fee-generating business that should have an astronomical ROE, you see that all the proprietary investing and leverage isn’t adding much to shareholder returns here. The irony of this is that these are the companies that everyone else comes to in order to get advice on corporate finance and capital allocation.

Why did this happen? They say that the reason is to diversify the business to stabilize the results, as the fee streams are too volatile for the tastes of public investors. In my view that is a lot of value to destroy in order to stabilize results that are still pretty volatile.

I suspect a better explanation is the investment banks are run for their employees rather than their shareholders. They are run so that there is just enough shareholder return left so that shareholders don’t complain too loudly and a 15-20% ROE seems to be that level. Of course, the returns could be higher, but around 50% of the revenues go to employee compensation.

Given the risk taking nature of the incremental revenues and the fact that 50% of the revenues go to employee compensation, the investment banks are evolving into hedge funds with…how shall I put this?…above-market incentive compensation fee structures.

Coming back to my main theme. I believe it is very important to analyze ROE and marginal returns on capital…but only in capital intensive businesses. It may surprise you, but I prefer at the right price capital intensive businesses with low ROEs, where I think the ROE will improve, to high-, or at least medium-ROE businesses.

The problem with high ROEs in capital intensive businesses is that it is hard to sustain the ROEs. Here, high returns attract competition both from new entrants that come with new capital and existing competitors that try to see what the better performing competitor is doing to copy it. The new capital and the copycats often succeed in driving down the superior ROEs. Really bad things happen to earnings when a 25% ROE turns into a 10% ROE.

This is why I prefer the low ROEs. Great things happen to earnings when a 10% ROE becomes a 15% ROE. ROE can improve three ways: better asset turns, better margins and by adding financial leverage. I like to look for companies that can expand the ROEs in as many of these levers as possible."

Lågt ROE med kapacitet att höja den gäller med andra ord för David Einhorn. Tankeväckande, i alla fall för mig som mest fokuserat på att identifiera bolag med redan högt ROE.

Tidigare har David framgångsrikt lyckats identifiera bolag som är på väg att råka illa ut. Vilket hans bok bl.a. handlar om. Han har också gjort sig känd för att sedan ett par år tillbaka hållit fram Apple som ett bolag på frammarsch. Något som tydligen också infriats. Senaste intervjun jag såg med honom nu i somras så framhöll han fortfarande Apple som det främsta, stora, tillväxtscaset och att bolagets framgångar antagligen kommer fortsätta ännu några år framöver. Vi får se om han får rätt i även det, men det skulle inte förvåna mig om det blev så. (Apple utgör det enskilt största innehavet i hans Greenlight Capitals portfölj, ca 13%. Näst största innehav och som han ökade i senast under Q2 är Seagate Technology).

Vad är din syn på ROE/avkastning på eget kapital?

Hur ser du på David Einhorns beskrivning av investmentbanker?

Vad tror du om Apple och dess framtid?

Value Investing Congress

Value Investing Congress är ett event i USA som är inne på det åttonde året nu. Det hålls två gånger per år. En gång på våren och en gång på hösten. Nästkommande träff är nu den 1 och 2 Oktober och hålls i New York. Platsen varierar. I våras hölls det i Omaha.

Value Investing Congress erbjuder en kombination av s.k workshops samt möjligheten att lyssna till välkända värdeinvesterare.  Exempel på föredragshållare denna gång är: David Einhorn, Bill Ackman, John Mauldin och Whitney Tilson.

Målet med träffen, enligt arrangörerna själva, är: "The goal of the Value Investing Congress is to create a thriving community of value investors. This Congress is a rich oppertunity to meet with other serious investors and benefit from sharing ideas and experiences."

Priset för att delta ligger på lite över 30.000 kr. Övernattning, resekostnader m.m. tillkommer naturligtvis.

Vore intressant om ett liknande event med fokus på värdeinvesteringar och dylikt skulle finnas i Sverige, eller vad tycker du?