Diary - May 2023

May 7, 2023 Back from Omaha trip

I just came back from Omaha today. It's quite an experience going to the Berkshire Hathaway's annual shareholder meeting. I got to meet a lot of people. Before the trip, I was actually hesitating about whether to go, as I knew I would end up getting up very early to line up before the entrance from midnight. But once I was there, I was actively meeting people, with all kinds of background and motivations. I ended up learning a lot of things from them. Every time from the trip, I would start to push myself to read more books and learn more things I don't know. So it's always a good idea to travel somewhere from time to time. That's the beauty of travelling. That is, you get to see different places and meet different people; in the process, you explore the world and learn more possibilities. It gives a chance for you to become a better person.   

May 8, 2023 Grandma's birthday

Today is my mom's birthday. When I took this picture, I want to show she was surrounded by the whole family, surrounded by a lot of love.

My mom always put everyone else above herself. She is the most selfless person I have ever know. She always does all the chores when I grew up. She is a role model for everyone. I hope Jace and Kyle can learn that from her. I used to complain that my mom was too diligent in doing all the chores around the house, making my dad and me lazy. 

Another of her traits is that she likes to worry a lot. Recently, Eva and her family visited our house and brought their dog with them. The dog was too lively and ran around the house. My mom is always afraid of small animals, so she was a bit afraid of the dog. But most of all, she dislike the fact that the dog ran around our yard and entered our house without cleaning its paws. It jumped onto the kids' bed too. That made my mom worried so much that she had the dog running around in her dream that night. The next morning, she complained about the dog again because of that. 

That's my mom, who gives her whole heart to the family, and likes to worry for smallest details. I wish she would be young and energetic and happy forever. 

May 9, 2023 Goal of the online journal

Some of the people I met during the Omaha trip were truly impressive. Many are self-motivating people that I can learn from. That's part of the reason I want to set up this website again and start to jot down my thoughts. 

Several topics that I want to cover in this online journal: 1) value investing or just investing, 2) parenting, 3) technologies that interest me, especially AI, 4) other interests like sports (swim, ski) or chess. Other than these topics, I also want to have a clear record of what's happening in our family. 

By doing all these, I want to keep my mind clear all the time, and keep better track of my life experience. I learned that if you pay more attention to every moment of your life, you will actually have a much better experience. For example, Asian people like to take pictures of food when they dine out. When they do that, research shows that they actually feel better and the foods seem to taste better! That's the ultimate goal of this journal, which is to make me become a better person and have a better experience overall. 

May 10, 2023 Start to read "Value investing" again

I am back from the Omaha trip, and I am urged to read more books. I found this audible book in my online library, "value investing" by Professor Bruce Greenwald. So I started to listen to the audible book and purchased the hardcover copy as well. The book seems to cover all the basic building blocks of value investing, including search, valuation, research, and risk management. I have finished about 1/4 of the book. I would like to pay more attention to some of the examples. Now that I am working on valuation of T company, I happen to need to apply some of the techniques in the book in my practice. 

The difficulty of applying value investing in the high tech space is to give the future growth part a value. For this particular company, I feel the moats are there, and the growth can be expected. Multiples have moved up from half year ago, but it's still at a relatively reasonable level. 

Given the current market, I want to have more exposure, as I think generally people are still worried about the direction of the macro economy. It's not that I don't care about the macro risks, it's more that I feel these companies are moving out of the industry downturn now one way or the other. So from the second half of this year, we should expect a gradual recovery of the IT industry, giving all major stocks a boost. That's the main reason I would like to take some leverage at this point. 

May 11, 2023 Reading the case study of Intel

I was tasked to do an analysis on T company, yet I was a little bit doubtful about my approach or even clueless in determing the growth portion of its value. It turns out the second edition of "Value investing" has a case study of Intel, and gives detailed analysis at several historical time. Now I want to read the book more carefully to understand its approach, and apply it to essentially all the companies under my coverage. Knowledge is so abundant in the books, as long as you have the time and patience to sit down and read them. I only wish I have read the books earlier. Now that I have accumulated practical knowledges of doing industry research, these books are critically important to help my enhance my skills in apply the value investing methodology in my daily work. 

May 12, 2023 Growth value investing?

Today I was all thinking of applying the technique in the book on the case of T company. I spent quite some time reading about the methodology in the morning, and calculating the numbers in the afternoon. I worked overtime to finish the writeup. I feel this is an overdue exercise. I should have done it way earlier. From the calculation, it seems that T company has some potential as a profitable investment candidate. If the ROE can persist for another five or ten years, that would definitely generate very handsome returns for investors. So the key question becomes how long can you predict into the future? Do you know what will happen in 5 or 10 years with a certain degree of certainty? For the next 5 years, it should be clear that the dominant player will continue to dominant. 

From reading the book, I also realize that it's generally much harder to be a value investor in the area of high growth technology world. Changing technologies will often lead to changing competitive environment. In fact, one of the key themes in the technology world is that all companies have to keep spending energy on innovations to bring new things to satisfy customers. It's almost like a never ending battle. Customers are hard to keep, and only few companies can find a niche where they can consistently generate over average return for a long period of time. 

In short, it's hard to do my job... But that's exactly the beauty of it. Bringing technology and investing together, that's the challenge for me. 

May 13, 2023 Rattlesnake Ledge Trail

Today my family went hiking with my coworkers. Weather was perfect for early summer. We arrived there at around 4pm and the place was still full of people. It's close to the beach of the Rattlesnake Lake. No wonder it's such a popular place. I can see it's a rare combination of the water and the hill that attracts people there. 

On the way climbing to the top, I had some little conversation with Z. He is very good at soccer and he talked about how he trained himself to be a better player. He believes that it's unnecessary to go to play in the youth clubs, as the kids can improve a lot by training individual skills one by one. One would need a lot of dedication to become a better player. It's the will to become the best player that drove him to train harder. That left me thinking that we ought to help J realize that simple truth. I wish everything is more about self-motivation. Hard work and enjoy the process. Hopeful that eventually leads to a fruitful life. It's just like hiking. Most of the time you are doing the hard work, and eventually there will be a moment of joy when you reach the top. And that's the beauty of hiking. 

May 14, 2023 A flag: read all classical books on investments! 

Today is Sunday. Most of the day was spent on accompanying the kids in soccer training, playing piano, learning chess lessons, etc. K was sick from morning till evening, threw up twice, and had fever in the afternoon and evening. No idea what caused that, but likely he caught cold during last night, after an exhausting day for him. 

I continued reading the "value investing" book. The methodology related in investing in growth stocks is very practical indeed. However, it does not provide a very useful approach in determining the exit points. The author actually mentioned some professionals would use a hard cap on PE as a solution. Any way, it's a very useful approach, and it's easy to comprehend indeed. 

I decide to make a long reading list and revisit all the classical books in the genre of value investing. It's about time this year that I want to apply some of the techniques on more stocks than T companies. The trip of Omaha definitely has once again aroused my aspiration to become a good money manager again. 

May 15, 2023 It's hard to predict technology trends

The "value investing" book uses Intel as an example to explain the idea of applying return based value investing methodology on growth stocks. In the case of Intel in late 1999, it's really hard to predict its future "organic" growth to be only 3% above GDP growth, following a fast growth period in 1990s. What if Intel successfully pull out its new product strategy in the internet and smartphone era? The story would become totally differently. My point is deep research and industry insights are critically important to make judgement calls. It's impossible to estimate future organic growth without deep knowledge of the industry. 

An intriguing question is what exactly happened in the CPU market? What happened to Intel and AMD? What would be the future for the two companies? 

May 16, 2023 Need to form better habits

Early this morning, I received emails telling me that grandma's Canada Visa was approved. I rushed through the whole morning to prepare the packages and sent both packages via UPS next day air. The bill was $293. It's costly as I had to use two separate packages. It's a repeated lesson to me that procrastination often leads to bad results. 

I need some new system to manage all the errands. J asked me to get some chalk so he could draw grids on the ground for his soccer drills, and I completely forgot it. 

K had a soccer tryout today, to be followed by two more. I am thinking not having him in the team. He is way too young for the sport. My co-workers all think it's better to build up the basic physical abilities before specializing into one area. I think he can wait for one more. Some other choices are way less costly then the semi-professional clubs. 

May 17, 2023 Better use of time

I want to finish reading one or two books per week. But that seems a bit ambitious given my current daily schedule and my reading speed. But with the help of better planning and tracking, I may be able to accomplish more. The ultimate goal is to become more knowledgable about the investment field and the area that I focus on. This year I want to improve on two areas, general domain knowledge in semiconductor industry, and investment methodologies. Most of all, I want to think more clearly about our investment portfolio, and achieve higher returns this year. 

May 18, 2023 Value investing should be easy to understand and practice

I feel more and more that we should focus on easy low-hanging fruits for value hunting. There are many areas that can provide easy targets that do not need tons of in-depth analysis. I do not believe you need full knowledge before making every investment decision. 

The fact that individual investor can invest with a smaller amount of money, and have some tax advantage against US institutional investors is huge bless. I truly believe it is therefore very straightforward to practice value investing as an individual investor. 

In addition, he does not need to limit himself to the China market. If he does so, it's a mistake. Time and again, we have seen evidence that the growth in China has slowed down. I do not have full faith that the growth will recover to previous levels. With this background, it's wise to move to some easier markets. There are two attractive areas that I feel comfortable investing in, one is the semiconductor sector with some selective names that I have the knowledge and insight about, two is the US banking sector, that I feel it's beaten down too much by the recent developments. 

There is no need to spend too much time reading investment theory books. I can buy the audible version and listen to them. I should spend the evening time more doing research on the companies, instead. 

May 21, 2023

We came back from the lake house trip, and found happy and exhausted. We spent a lot of time kayaking on the lake. The lake was serene. The experience was spiritual. Another highlight of the weekend was the chess tournament that I organized. Jace won both day's champion and was thrilled by the come-back victories. He is growing into a more mature and independent kid. Kyle watched more TVs, but he was also playing with other young kids a lot. 

May 22, 2023 Tech investors never get bored

As I revisit the topic of competitive advantages, it's clear that many of the aspects do not easily apply to technology firms. It is simply hard for technology firms to gain customer captivity. It's hard to get any sustainable cost advantages. Much of the technology innovations cannot transfer into cost advantages. The lifetime of the products is generally short. Newcomers often enjoy advantages with the usage of newer equipment and better knowledge of new technologies. It is a forever battle to learn the new technologies for the industry participants. 

On the other side, it is the beauty of the world. Because the technologies keep updating, there is no shortage of challenges in understanding the dynamic competitive landscape. An investor in this world will constantly get challenged. 

Most interesting of all, it seems that technology is the area that enjoys high beta and provide a promise for potential quick rich. Whether that is easily available to me is still a question mark. But it is a rather worthwhile effort to get immersed into the endeavors. 

May 23, 2023 More attention to details and the trends

I am reading this book Competition demystified. I found some the example about Intel and AMD does not make sense to me. It's over-simplified. The gradual decline of Intel should be closely examined. If industry analyst pays enough attention to the details, there is a chance they can capture the changing landscape that is happening since AMD came up with the Zen artchitecture. When I was reading Bernstein's research reports on AMD, I feel disappointed, as the analyst failed to capture the subtle changes that companies are experiencing. It is the details that determine the rise and fall of the companies. If someone pays attention to the details, he can indeed capture these sea changes ahead of the market, and make tons of money. 

May 23, 2023 Need a survey of the market

I was asked what other companies have more certainty and I fumbled for the right answer. In fact, this year I was determined to learn whatever I feel interesting to myself. And somehow that actually works better than I thought. The work is suddenly more fun, and I'm suddenly want to save my time to do some more work. That's an interesting change to me. It reminds that only after high school when I started to put serious efforts into study. But once I pay some serious attention to it, I find I'm quite good at it. Right now, I only want to earn some more money and learn some more interesting companies. 

The book is more useful than I thought too. At least I learned that local density is more important in evaluation the economy of scale. The concept could mean totally different things in different industries. For a semiconductor fab, that means large scale operations can improve operating efficiency of the plant, or it could mean that R&D expenses could spread to more products and lower the average burden. But all in all, I still believe theory is not that useful at all. Every industry is different. Without such detailed knowledge in the competition theory, one can still learn a lot from observing the actual competitions in the industries. 

May 24, 2024 Software development is fixed cost; NVIDIA on fire

I was reading the book today and it cited the case of Cisco, saying that software development was actually helping the company to secure its competitive advantage. I agree. Time and again, hardware innovations are extremely difficult to lead to customer captivity. Software is the soul of the systems and often leads to high switching costs. Time and again, technology companies have to embed software in their technology offerings to keep its edge and capture more value from the tech value chain. 

Another thing to record is that NVIDIA has led the whole semi market on fire. The stock rose 25% on a single day on top of a $178 billion market capitalization. It's amazing. I admit some of it may be hype. But on the other side, after reading the earnings call transcript for three times, I firmly believe NVIDIA is well positioned in the center of the wave of building supercomputers in the coming generative AI era. It's a fantastic story about technology innovation and business growth. We also benefited as we are investing into the space as well. I believe our portfolio is well positioned to reap the benefits. 

May 25, 2023 Cooperation is hard to maintain 

I am reading the chapter about the competition between Coke Cola and Pepsi. It reminds me about the memory industry. I feel a key difference is that the pricing negotiation is rather private. Big customers have the power to push for lower prices with promises to order more. Market share data is not that transparent. Order volume fluctuates from month to month. All these factors add up and make the market very volatile. 

This week the semiconductor has been on fire. It's partly the hype, though some companies are indeed still in the reasonable range of valuation. 

May 26, 2023 Vertical integration and unhealthy competition

I am reading the chapter talking about synergy. It reminds me of the vertical integration that Samsung Group has maintained. It is clear that any synergy is delusional between these competitive segments of the electronics market. Maybe the memory industry is just doomed due to the history of unhealthy competition and the unlucky fact that it's dominated by Korean companies. If we pay more attention to these overall industry structure, we may be able to save ourselves a ton of trouble and money in learning the ins and outs of a less promising industry such as memory. On the other hand, not all hope is lost. With every uprising cycle, people are allured to the industry by the promise of a better industry structure. Only history can tell if that will be true. 

June 1, 2023 A great company indeed

I finished the book Competition Demystified. It is a rather well-written book, with simplified analysis frameworks and enticing case studies. During the reading, I constantly think of the company I am studying now. It is clearly a great company. Reading the past transcripts of its earnings calls, I realize how great the former CEO was. And that is a clear contrast to the management team of SEC. Both companies are widely owned by oversea investors, but only one of them is truly a great company.