Where You Come First, Always Entrepreneurs Investing in Entrepreneurs Since 2000 “Tech Investing in Asia” & 25 Years of Investing in Asia “Technology is just something we don’t understand, so we don’t invest in it.” – Buffett, 1988 Nov 2011: US$10.7B (US$167) for 5.4% when mkt cap is US$208B; added $1.3B in 4Q11, total stake US$12.3B 2004: Gates joined Berkshire board 14‐Bagger Coke: US$1B for 7% in 1988 when mkt cap Logy(ic)? was US$10B, now US$140B No Tech Asia 9th Annual Value Investor Conference, Omaha, May 2012 Seng Hock TAN, Aegis Group Companies 1 Aegis – To Protect, To Preserve, To Guard Where You Come First, Always Entrepreneurs Investing in Entrepreneurs Since 2000 Snippets From 2006 LA Value Investor Conf. Presentation: Can Value Investing be done in fast growth Asia? The Security I Like Best (Dec 1951): “Charlie showed me in the direction of not GEICO just paying for bargains, as Ben Graham had Premiums Policy Year taught me. This was the real impact he had Written Holders on me. It took a powerful force to move me 1936 $103,696.31 3,754 on from Graham's limiting view. It was the 1950: Strong power of Charlie's mind. He expanded my growth in the 1940 768,057.86 25,514 horizon; Boy, if I had listened only to Ben, past = Sell into 1945 1,638,562.09 51,697 strength? would I ever be a lot poorer; I became very 1950 8,016,975.79 143,944 interested in buying a wonderful business at a moderate price.” 2008 12.7 billion! 9 million! ‐ Warren Buffett “…would have turned down if the asking price [for See’s Candies] is a “Of course the investor of today dime more [than $25 does not profit from yesterday’s 1988 million]… that is how silly growth. In GEICO’s case, there is we were..” Price‐Book: 5x every reason to believe the major PE: >15x portion of growth lies ahead.” “… the first time we ‐ Buffett, Dec 1951 1972 paid for quality” Price‐Book: 3x ‐ Charlie Munger 2 Aegis – To Protect, To Preserve, To Guard Where You Come First, Always Entrepreneurs Investing in Entrepreneurs Since 2000 Snippets From 2010 :In Asia, Invest in the Horse (Business Model) or the Jockey (Entrepreneur)? But Consider the (Booby) Track First! Jockey: Entrepreneur Track: The Asian Environment China is a big track: Shanghai has the world’s third largest stock market by market capitalization at around $3 trillion in its $3.2 trillion economy, a tremendous growth from $380 billion since the Non‐Tradable Share Reform announced in April 2005. Shares worth Horse: Business Model $5.01 trillion changed hands on the Shanghai Stock Exchange in 2009, compared with $4.07 trillion on the Tokyo Stock Exchange 3 Aegis – To Protect, To Preserve, To Guard Where You Come First, Always Entrepreneurs Investing in Entrepreneurs Since 2000 For Omaha 2012 : Finally, after Right Jockey & Right Horse on Booby Track, Can You Collect the Winning Ticket? 4 Aegis – To Protect, To Preserve, To Guard Where You Come First, Always Entrepreneurs Investing in Entrepreneurs Since 2000 IBM: “Lion Infrastructure” to Ride Asian Growth! “Buffett said he had gained added insight about IBM by reviewing the company's regulatory filings, and said he had been "hit between the eyes" by the advantages the company enjoys in finding and keeping clients. In addition, he had discussed the company with the information technology departments at several of Berkshire's subsidiary companies, and drawn upon his own expertise from decades ago, when he had tried to market competing technology to companies, only to be told that "no one had ever gotten fired" for selecting IBM as their supplier. "It's a company that helps IT departments do their job better," Mr. Buffett ! ia said. "It is a big deal for a big company to change auditors, change law s A firms," or for IT departments to move away from using IBM, he said. o T "There is a lot of continuity to it." As the company retains existing clients, they are growing substantially around the globe, he said, allowing IBM to report double‐digit growth in 40 countries. Mr. Buffett Price/Book Value said he admired IBM in part because they have laid out clear long‐term goals and then met them. "They've done an incredible job" in laying out = 11.7x a roadmap for the future, Mr. Buffett said on CNBC. "It was something I should have spotted years earlier," he said. Mr. Buffett said executives at IBM were unaware of the purchases, and that he had never spoken to the company's outgoing chief executive officer, Samuel J. Palmisano.” ‐ New York Times, 14 Nov 2011 5 Aegis – To Protect, To Preserve, To Guard Where You Come First, Always Entrepreneurs Investing in Entrepreneurs Since 2000 IBM: Recurring Services (36%) & Software‐Analytics Earnings (50%) Apr 93: Lou Gerstner Mar 02: Sam Palmisano 6 Aegis – To Protect, To Preserve, To Guard Where You Come First, Always Entrepreneurs Investing in Entrepreneurs Since 2000 Other Tech Stocks That Berkshire Bought “I’ve been an admirer of Andy 3Q11 $85m Mkt Cap: $7.9B Groves and Bill Gates and I wish I’d 4Q11 $140m translated that admiration into action by backing it up with money. Shareholders’ Equity –$98M But when it comes to Microsoft and Intel, I don’t know what the world 3Q11 $250m Mkt Cap: $139.1B will look like ten years from now, 4Q11 $308m P/BV 3x and I don’t want to play in a game where the other guy has an advantage. I could spend all my time 3Q11 $195m Mkt Cap: $33.1B 4Q11 $933m thinking about technology for the next year and still not be the 100th, Shareholders’ Equity –$3.1B 1,000th, or 10,000th smartest guy in the country analyzing those Mkt Cap: $10.4B businesses. There are people who 4Q11 $133m P/BV 2.5x can analyze technology, but I can’t.” – Buffett in OID, Sep 24, 1998 "Even though Apple may have the most wonderful future in the world, I'm not capable of bringing any drink to that particular party and evaluating that future.“ – Buffett, 21 Mar 2011 (AAPL $330) 7 Aegis – To Protect, To Preserve, To Guard Where You Come First, Always Entrepreneurs Investing in Entrepreneurs Since 2000 Wal‐Mart: Scaling In a Tough Industry By Technology Kmart was bigger in 70s and 80s. 100 $340M Busy acquiring Furr’s Cafeterias of Texas, 1975 Bishop’s Buffet chain, pizza‐video parlors, Stores Sales Payless Drug Stores, the Sports Authority, and OfficeMax as outlets for its retained earnings. IBM; Electronic By the end of 80s, Kmart was at least ten years cash registers; $1B behind Wal‐Mart in its operational capabilities. 1977 Electronic order As Kmart fell ever further behind, its need for from supplier Sales in 1979 outside‐of‐the‐core growth platforms became a self‐fulfilling prophecy. Wal‐Mart now collects more data about Bar codes; stores $10B consumers than anyone in the private sector. 1983 were networked Wal‐Mart mined this data into actionable with satellite Sales business intelligence to ensure that consumers have the products they want, when they want them, and at the right price. $100B For example, they have learned that before a 1992 Retail Link hurricane, consumers stock up on food items Sales in 1995 that do not require cooking or refrigeration. 8 Aegis – To Protect, To Preserve, To Guard Where You Come First, Always Entrepreneurs Investing in Entrepreneurs Since 2000 9 Aegis – To Protect, To Preserve, To Guard Where You Come First, Always Entrepreneurs Investing in Entrepreneurs Since 2000 Key Is Discipline and Integrating Technology Into Business Model Sam Walton: “…we as a company have been ahead of most other retailers in investing in sophisticated equipment and technology. The funny thing is, everybody at Wal‐Mart knows that I’ve fought all these technology expenditures as hard as I could. All these guys love to talk about how I never wanted any of this technology, and how they had to lay down their life to get it. The truth is, I did want it, I knew we needed it, but I just couldn’t bring myself to say, “Okay, sure, spend what you need.” I always questioned everything. It was important to me to make them think that maybe the 融汇贯通 –Achieve mastery through a comprehensive technology wasn’t as good s they thought it was, or that study of the subject. maybe it really wasn’t the end‐all they promised it would be. 宋·朱熹《朱子全书·学三》： “举一而三反，闻一而知十，乃学者用功之深，穷理 It seems to me they try just a little harder and check into things 之熟，然后能融会贯通，以至于此。” a little bit closer if they think they might have a chance to prove Wal‐Mart shared its info with me wrong. If I really hadn’t wanted the technology, I wouldn’t supplier in exchange for greater have sprung the money loose to pay for it. By the late 60s, we discounts to integrate with its EDLP were ready well positioned for serious growth. We had a retail business strategy, whilst Kmart concept we believed in, the core of a professional management simply “invest” and “collect data” team, and the foundations of systems which would support without a purpose! growth.” 10 Aegis – To Protect, To Preserve, To Guard Where You Come First, Always Entrepreneurs Investing in Entrepreneurs Since 2000 One of Our Favorite Questions in Due Diligence for the Asian Entrepreneurs Most Asian companies are “one‐man‐shop” operations with the founder making all the decisions; the willingness to build a team and invest in a system to cascade decision rights throughout the organization is an important signal that the founder desires and cares to scale up the company in a sustainable manner by not hoarding knowledge.