The ground zero of this crisis is indeed the leisure and travel industry, but not all leisure and travel companies will navigate this crisis in the same way. Most likely, publicly traded companies will get government aid first, and non-listed companies will get help later if any at all. This is an unintended consequence of how the hotel industry is structured in the United States. According to Smith Travel Research (Smith Travel Research, 2015) in North America, 67% of hotels are branded, while 33% are not. Branded hotels are collectively organized, so they can easily reach out to the government for help, something that independent hotels will find very hard to do. Bridgewater estimates that the revenue drop in the travel and leisure industry in 2020 will top $199 billion for listed companies, and a whopping $920 billion for non-listed companies; this includes independent hotels, independent tour operators, independent travel agencies, etc. (Jensen et al., 2020). It is very unlikely that the financial resources from a  government bailout will make it to these companies, in the same way, they will make it to listed publicly traded companies such as Hilton or Marriott; unfortunately, the funneling channels that allow these operations are limited, and the institutional representation of these companies in front of the government is very weak, if non-existing. This situation will delay or prevent these companies from accessing bailout resources, at least initially, and at the exact moment when they need it the most. 

Companies like Hilton are very likely to receive financial help from the bailout first, but companies down the chain or in related industries may not have the same fortune. Bridgewater found that the financial system is less likely to crack as it did in 2008, even though they hold a third of the implied losses from the economy during this crisis. If the leisure and travel industry collapses, it will threat the financial system and will have immediate consequences in other economic sectors. One in eight non-farm jobs are supported by travel in the United States. A crisis in this sector will ripple through the whole economy in a variety of industries. At that point, the government will be forced to either expand the scope of the bailout o let some of these companies go bankruptcy. 

After the crisis, Hilton and Marriott would emerge as big winners, while independent hotels would be the brink of collapse or financially stressed. Hilton and Marriott will see a flow of independent hotels looking to join established brands and minimize the downsize in situations like this. If there is something certain is that after this crisis, not all hotel companies will emerge as they were, undoubtedly the big winner after everything is set and done would be mostly Hilton.


Danger Ahead! A must see advice from Carl Icahn

by admin on February 29, 2016

In this video, one of the most successful investors in the world: Carl Icahn speaks about the great danger we are facing ahead. Carl Icahn speaks about the carried interest loophole, the problem of repatriation and inversions and how these problems don’t get fixed in Washington.

He also speaks about companies engineering their finances. Companies today artificially inflate their earnings through mergers and acquisitions and stock buybacks. Finally, he speaks about the two biggest problems of all: Introduction of permanent low-interest rates by the Fed, and oversell of high bond yields to the public, especially by BlackRock.


Is Expedia spending too fast, too much?

by admin on May 10, 2015

Expedia-logo-and-wordmarkUnquestionably, Expedia Stock is a great business and for that reason one of the top positions in my portfolio. Lately however, I have been seeing that the company is spending too much too fast on marketing and acquisitions, betting heavily on a future that looks bright on paper, but has yet to be proven.

While Expedia may be right, in some instances organic growth is more important that growth through acquisitions and over spending on marketing When this kind of rapid growth happens, companies can accumulate dangerous amounts of debt too quickly; the smallest tailwind can cause serious trouble and instability.

To illustrate my concerns, I’ve included a list of the most recent Expedia acquisitions/strategic investments:


In November 2014, Expedia completed its acquisition of Australian-based Wotif Group for $658 million. Wotif Group is a prominent player in the Asia Pacific market with a host of travel brands under its umbrella, including,,, Asia Web Direct,,, and Arnold Travel Technology. Wotif’s portfolio focuses on hotel and air, offering consumers more than 29,000 bookable properties across the globe. The group currently operates from Australia, China, Indonesia, Malaysia, New Zealand, Singapore, Thailand, UK, and Vietnam.

Auto Escape

Expedia acquired French car rental company, Auto Escape, in June 2014 for $85 million. The acquisition increased Expedia’s exposure to the $36.9 billion global car rental industry, which is expected to grow at a compounded rate of 13.6% to reach $79.5 billion by 2019, according to Transparency Market Research.

Auto Escape offers car rental services from over 300 car rental suppliers in 125 countries, and has a fleet of over 800,000 vehicles. It is estimated that Auto Escape’s revenues increased fivefold in the last five years to €120 million ($160 million). Auto Escape became a part of the brand, a business unit managed by Expedia’s Hotwire Group.


In January 2015, Expedia acquired online travel agency Travelocity from technology company Sabre Corp for $280 million in cash. The deal follows a 2013 marketing agreement in which Expedia Inc’s technology powered platforms for Travelocity’s U.S. and Canadian websites, while Travelocity drove additional web traffic to Expedia.


Expedia is currently trying to seal a $1.34 billion takeover of Orbitz. Expedia’s blockbuster purchase of Orbitz may not significantly alter the competitive landscape for consumers, but it still represents a dramatic move in the larger, ongoing battle for travelers’ clicks, dollars and long-term loyalty. The newly enlarged Expedia will essentially control 75 percent of the U.S. online travel agency (OTA) market, based on 2013 figures. However, OTAs handle just 16 percent of total bookings, meaning that the company’s total is closer to 12 percent, hardly a monopolistic scenario – at least in the current market.


In 2013, Expedia agreed to take a majority stake in leading German travel metasearch site Trivago in a cash and stock deal worth $632 million.

Founded in 2005, Dusseldorf, Germany based Trivago has a strong presence in hotel metasearch in Germany, Spain, the UK, Italy, France, and has recently entered the U.S. market.

Expedia has signed a definitive agreement to take a 62% stake in Trivago, which expects to take in $132 million in net revenue in 2012.


This year, Expedia made a $270 million investment in Decolar/Despegar, getting close to a 20% stake of the largest online travel agency (OTA) in Latin America. Expedia is known for making these strategic investments before fully acquiring companies, and if history repeats itself, this may be the first step in a future acquisition, two or three years down the road. That was the model they used with Travelocity – they began investing back in 2013, and finally acquired the company two years later.

When taken together, these acquisitions add up $3.2 billion since 2013. For a company that is generating a yearly net income of ~$300 million putting their debt to equity ratio at 1.05, double that of Priceline at 0.45.  This means Expedia is highly leveraging its acquisitions through debt. To a certain point this strategy makes sense, but things may not materialize as quickly as they would like or need. For instance, the company is losing tons of money on its venture with elong, one of the biggest OTAs in China, where Expedia is betting bi. Last quarter the company lost $33 million on this deal, and they expect to continue losing money at the expense of positioning and expansion in the Chinese market. This investment is an example of a big bet that may or may not produce the expected results. There is fierce competition in China including Alibaba and Ctrip, and the market is not as mature or proven as those of the United States and Europe.

For Q1 2015, Expedia reported an operating loss of $51 million including China, compared to a $3 million operating loss last year. This led to an adjusted loss per share of $0.03, while analysts were expecting a profit of $0.09 per share. Excluding China, the company delivered an operating loss of $10.9 million. In the short terms this may not be a problem, but spending and acquiring companies like is 1999 won’t be sustainable in the long run. Since 2010, shareholder equity has decreased -36%, while Priceline’s shareholder equity is up 518%.

In order to maintain growth and market share Expedia is spending heavily on advertising. Total sales & marketing are up nearly 70% of core OTA revenue (22% Y/Y). Meanwhile, SG&A expenses rose 17% Y/Y. Overall, spending is outpacing revenue growth, which is expected to continue as competitive headwinds remain.

If this trend of massive acquisitions continues at the expense of shareholders value and debt, I may sell my position in the coming months. I already have the company under close observation, and will be monitoring all future developments. While I think acquisitions can be quite valuable when they make good strategic and business sense, they also have the potential to be very dangerous if they are leveraged and made on assumptions that may never be fully realized.


I recently watched a recording of a brainstorm session with Steve Jobs and his ‘Next Incorporated” 11 team members back in 1985. It is an incredible 20 min episode highlighting some of the characteristics we all already knew about one of the greatest entrepreneurs of our era.  In the video, Steve Jobs said this to his team:

“Companies come and go with the crest of the wave”

I have found that through history there is nothing more true than that statement. People, governments, and companies have all come and go with these cycles.  Sometimes this happens slowly and sometimes quickly, but they all are born, grow, diversify, expand, decline, and often eventually disappear.

Peter Thiel, one of the most successful startup investors in Silicon Valley says “every moment in business happens only once”. These are his words:

What I dislike about business books, is that they all have a formula: the 7 (or 5, 8, 10) steps to success. But the truth is, every moment in business happens only once; the next Bill Gates won’t be building an operating system. If you’re just trying to copy, you’re not learning from them…

… Take Google, for example, and ask yourself: why is it so successful, on so many levels? Because they’ve been able to carve out a unique category that has put them years ahead of their competition; they are not competing like crazy (the way a restaurant in San Francisco would, for example).

This statement articulates the main reason I will be keeping Google (GOOG) in my portfolio for years to come. Google right now is a very successful company, and every single technology company on the planet wants to operate just like them. The model is perfect for our time, and I expect the company to keep growing and diversifying at least for 10 more years. However, this doesn’t mean that the Google model will be the perfect model for the future. At some point Google will stop growing, it will slow down, and eventually will start to decline.

As companies grow they become more difficult to operate and responsibilities and goals inevitably decentralized. While Larry Page and Sergey Brin may have hired their own employees, I assume that’s no longer the case now that they have more than 40,000 employees worldwide. The original Google employees from the 80’s and 90’s are now married, have kids and priorities in their lives may have changed. Over time this shifting in employee focus and tenure can result in a slow down in efficiency and innovation, change frequently becomes difficult, and new smart people that want to move up the ladder face a lot of internal barriers from “originals” employees more interested in protecting their jobs before retirement than in coming up with the next great idea (let alone investing the energy required to realize it).

If a life cycle can be applied to a company, Google is still in the expansion phase, and it may stay in this phase for as many as 10 more years. At the same time, Google’s innovation and diversification has slowed. Google maps was launched in 2004, and Youtube in 2006 – both from acquisitions, in the case of Google maps from Keyhole, and YouTube from former PayPal employees that created the company in 2005. Since 2006, Google has not launched any significant product or service as big or with the potential of Google Maps or YouTube. However, despite the lack of recent innovation, these two products, plus Google Fiber and Google AdWords offer Google a lot of room for growth. The focus of the company has changed from innovation to expansion and distribution. That is what it makes Google so attractive it is a company that, with its current lineup of products, has the potential for growth every single year over the next 10 year at a reasonably healthy rate. It is true that the company may have its ups and downs like any other company, but a company in this phase has a very good chance of outperforming the S&P 500 over the next 10 years.

Personally, I look for businesses that have a competitive advantage, a big barrier to entry for competitors, and are expanding, just as Google is right now. As long as technology trends don’t change, Google would be a reasonably safe bet. 20 years from now, Google may not be that relevant anymore (even if that is hard to imagine), but today they can easily sustain their growth and the expansion and continue to be a company that will do well for years to come.


Another great lesson of Warren Buffett

by admin on March 10, 2015

Warren Buffett

Warren Buffett is by far the greatest investor of all time. His way of thinking, perseverance, and tough negotiation skills are all qualities that set him apart from everybody else. As Warren Buffet’s prepares to retire (he is already 84 years old), he continues to give investors, (and frankly all of us) incredibly valuable lessons in investing, money allocation. and life in general.

When Warren Buffet turns 87, he will likely receive $1 Million from Protégé Partners, LLC. This time though the money won’t come as a result of one of his many brilliant investment decisions, instead it will come from a simple Vegas-like bet he made back in 2008, 7 years ago.

The bet was made with Protégé Partners, LLC who claimed that over a ten-year period the S&P 500 would underperform select portfolios from five hedge funds.  Buffett, who has long argued that the fees hedge funds command are onerous and should be avoided, bet that the returns from a low-cost S&P 500 index fund would beat the results delivered by the five funds that Protégé selected.

Each side put up roughly $320,000. The total funds of about $640,000 were used to buy a zero-coupon Treasury bond that will be worth $1 million at the bet’s conclusion in 2018.

The $1 million will then be donated to a charity. If Protégé wins, it has designated that the money be given to Absolute Return for Kids (ARK), an international philanthropy based in London. If Buffett wins, the intended recipient is Girls Inc. of Omaha, whose board members include his daughter, Susan Buffett.

Protégé partners are smart people, they managed around $3.5 billion at the time of the bet. Ted Seides, and two other men, CEO Jeffrey Tarrant, and Scott Bessent are partners. Each has a strong investment background, and two of the three have worked with well-known market practitioners. Seides learned the world of alternative investments under Yale’s David Swensen, and Bessent worked with both George Soros and short-seller Jim Chanos.

In a recent interview on NPR, the president of Protégé Partners, Ted Seides, said the selected funds were doing quite poorly. In fact, the S&P 500 fund run by Vanguard that Buffet is betting on rose more than 63%, while on the other side of the wager the hedge funds have only returned 20% after fees.

When the two sides made their respective cases for why they would win, Buffett noted that active investors incur much higher expenses than index funds in their quest to outperform the market. These costs only increase with hedge funds, or a fund of hedge funds, thus stacking the deck even more in his favor. “Funds of hedge funds accentuate this cost problem because their fees are superimposed on the large fees charged by the hedge funds in which the funds of funds are invested,” Buffett argued at the time.

A number of smart people are involved in running hedge funds, but it turns out that you don’t need to be brilliant to do well in the stock market, in fact the smarter you are the greater your risk of making bad overly-confident calls.

Last December, the S&P Dow Jones Indices published “The Persistence Scorecard,” which measured whether outperforming fund managers in one year can continue to outperform the market going forward. “Out of 681 funds that were in the top quartile as of September 2012, only 9.8% managed to stay in the top quartile at the end of September 2014.”

Based on data provided by Morningstar Direct, fewer than 20% of actively managed U.S. Stock funds beat their benchmarks last year, and those that did managed to do so by only 180 basis points on average. Greggory Warren, CFA Senior Stock Analyst from Morningstar’s Ultimate Stock-Pickers said in March of this year “Our top managers did not fare much better, with only one of the four fund managers that we track beating the market by more than 180 basis points last year. “

Billionaire Hedge fund managers also got it wrong in 2014. Only a few of the 20 billionaire investors tracked by iBillionaire performed above the +15.30% gain posted by the S&P 500 in 2014. In aggregate the iBillionaire index climbed +11.67%, underperforming the S&P 500.

So why does this matter? Why can’t hedge funds outperform the market or even deliver alpha? This is the same question The Teacher Retirement System of Texas and MetLife, Inc. are asking. Hedge fund managers, who are among the highest paid managers on Wall Street, have come under pressure from clients to adjust agreements since the 2008 financial crisis. Traditionally, the firms charged investors 2 percent of assets as a management fee along with 20 percent of profits as an incentive. Despite the pressure, many firms continue to stick to the “2 and 20” model, and some management fees are as high as 4 percent with a 27 percent cut of profits.

As hedge funds trail the Standard & Poor’s 500 Index for the sixth straight year, some clients have complained that managers still provide little information about their holdings and tie up their investors’ cash while lagging behind benchmarks. The California Public Employees’ Retirement System said in September it would divest its $4 billion from hedge funds after officials concluded the program couldn’t be expanded enough to justify the costs.

Warren Buffett knows all this, he knows how Wall Street operates and that’s why, for him, it was a no-brainer to think that a simple index fund could out-perform most hedge funds out there. One of the underlying problems is that hedge funds have so much power, ironically power given by anyone with a 401k. Mutual funds manage the money in a typical American’s 401K and other retirement plans. They don’t get paid based on performance, instead they are paid based on the amount of money they manage regardless of gains or loses. They are also willing to take on more risk because they don’t have anything at stake since what they are “managing” is not their money.

My advice to you, based on the deep wisdom of Mr. Buffet is, the next time you are considering an investment option, look for a couple of things: funds with low or no management fees, and funds that are managed by people whose personal capital is also invested in the fund. Here is a good place to start.

Summary Portfolio Performance

Since inception (01/19/12), the model is up 40.5%, versus the S&P 500 54.9%. The return of the S&P 500 in February 2015 was 5.49%, as compared with 6.86% for my Dividend Paying Large Caps portfolio.  So far my portfolio is up Year to Date 4.61% vs 2.21% for the S&P 500.


In February, Lukoil (LUKOY), JC Penny (JCP) and Adidas (ADDYY) performed well. They were up 20%, 16.9% and 12.8%, respectively. Lukoil benefited from the ceasefire deal reached with Ukrania in January.

JC Penny as I mentioned last month it is not out of the woods yet, but revenues have stopped declining. Adidas benefited from the good news out of Europe, as well as the news that Adidas is actively searching for a new CEO. Longtime Chief Executive Herbert Hainer, who has led the company through years of success, has recently struggled to meet profit targets, sparking investor pressure for change at the top, once a replacement has been confirmed, I expect a spike of the stock price.


In February, my worst performing stock was Ralph Lauren. Ralph Lauren Corporation’s stock suffered the biggest one-day plunge in its history on February 4th.  After the apparel company blindsided investors with a disappointing fiscal third-quarter report and outlook, the stock plummeted -18.22% to the lowest closing level since July 12, 2012. The previous worst one-day performance occurred on November 5, 1998, when the stock tumbled 15.707% in the wake of disappointing quarterly results.

Acquisitions in February 2015

In February, I added two positions to my portfolio: Priceline (PCLN) and Expedia (EXPE). Both are companies that I believe will benefit extensively from industry consolidation, the good health of the travel industry in 2015, and the natural migration to new technologies. More on that here.

Liquidations in February 2015

In February, I liquidated Bed Bath & Beyond (BBBY), a great company, but the stock was flying high. Since I sold this position the stock dropped -4.71%. I found better opportunities in the market and they paid off well in February. Both Priceline and Expedia and are significantly higher since I purchased them. Priceline is up 14.19% while Expedia is up 4.53%.


Expedia-PricelineThe global economy is a complex machine, the result of many small transactions that take place in different markets and sectors. When a particular sector is down, another may be up, and vice versa. Money moves around as things change, and in our world, change is a constant. When changes are taking place, opportunities abound. The key is in understanding the present without losing perspective on the past.

Some of the most recent dynamic changes in our economy have opened the door of opportunities in a variety of sectors that were not attractive just few months ago. As I mentioned here, the energy sector is currently a very interesting sector for value investors with a long-term view. Another sector that I believe is becoming interesting is the tourism/travel industry. There are few reasons for this:

Low Fuel Prices

Thanks to low gas prices, airlines are profiting from traveling like never before. When oil prices shot up a few years ago, many transportation businesses started adding fuel surcharges. Now, fuel prices are plunging, but many of those surcharges remain. As the year progresses and airlines start reporting big increases in revenues year over year, stock prices should move up quickly. The drop in the cost of oil is always a huge factor in the airline industry where 30 percent of all expenses are fuel related. Airlines that are still down now are down because they locked in the price for a portion of their total fuel spending in 2015 through hedging. Delta reported $180 million in fuel-hedge losses in the last three months of 2014 as price declines accelerated, while United lost $237 million and Southwest lost $13 million. American Airlines decided not to hedge last year is profiting at a record levels. That decision has allowed American Airlines to take full advantage of the steep plunge in fuel prices. This year’s net income for American may be above $5 billion.

Thanks to the consolidation of the airline industry there is no pressure to lower prices anytime soon. In 10/24/2014 I acquired shares of Copa Airlines (CPA) and since then the stock is up 13.55%, the company is paying 3.3% dividend and the return of equity is at 22.61%.

Low fuel prices have also had a positive impact on travelers. People are suddenly enjoying more disposable income, and may are spending this on travel. Any increase in travel will benefit both hotels and online travel agencies (OTAs). I expect that sector to outperform the S&P 500 in 2015.


The other factor that makes the tourism/travel industry interesting right now is the industry consolidation. Hotel chains are buying other hotel chains, and online travel agencies are buying other online travel agencies at an increasing rate. In 2010 Marriott acquired AC Hotels, then in 2012 Gaylord Hotels for $210 million, and most recently in 2015 they acquired Delta Hotels in Canada for $135 million. On the online travel agencies side similar takeovers are occurring. In 2013 Expedia acquired Trivago, and this year they also acquired Travelocity for $280 million. Expedia currently owns, Hotwire, Venere, and a few other major brands. Priceline, which is the other major competitor in the market, owns and Agoda. In 2013, Priceline acquired Kayak for $1.8 billion, and they may now be targeting Orbitz that recently hired bankers to find a buyer. New entrants will have a hard time getting any share of the market if this trend continues. These companies will also benefit from economies of scale.  Online travel agencies (OTAs) are the fastest growing distribution channel globally, and the two largest, Priceline and Expedia, outpace the market by no small margin. Combined gross bookings of the two jumped from 38% of global OTA sales in 2011 to 47% in 2013. The continued, super-charged organic growth of Priceline’s, as well as Expedia’s assumption of the Travelocity volume largely in 2014, mean that global share of the two leaders will only accelerate in 2015.

Channel shifting

Hotels in general use four different channels to acquire guests. The first is property direct or when future guests book directly through the hotel, either booking on-site or through the commercial department of the property. The second channel is the reservation center, which is the segment of future guests that call the hotel to make a reservations. The other two channels are online: web direct, when the customers book through the hotel’s direct website, and online travel agencies (OTAs), which is when reservations come to the hotel from third party sites.

According the U.S. Travel Advertising Marketplace: Industry Sizing and Trends 2015, in 2013, 42% of gross bookings came through online channels. This represents a tectonic shift for the industry, as of 2013, online channels captured more travel ad dollars than offline for the first time. Bookings coming from online travel agencies are growing at double-digit rates per year, while direct bookings from properties and reservation centers are having an increasingly hard time keeping up. I expect this shift to continue for the next few years, which will benefit any company participating in or facilitating an online booking channel.

Natural Growth

The travel industry, and the hotel industry both continue to grow every year. In 2014 U.S. hotel industry’s occupancy was up 3.6 percent to 64.4 percent.  The average daily rate rose 4.6 percent to US$115.32; and revenue per available room increased 8.3 percent to US$74.28. Stocks of these industries are still being traded at reasonable prices, but may grow naturally as a result. Of course there may be hiccups along the way because the travel industry is very sensitive to forex exchange variances and also because some of these industries may over spend on expansions or acquisitions. For example, Expedia is making key investments in Trivago’s top-line growth, sacrificing near-term profits to fund global expansion. Trivago benefited from an estimated $108.5 million TV advertising campaign in the U.S. alone — the largest of any online travel brand — and generated just $4 million in adjusted EBITDA in 2014. In the long term, it is an attractive industry where interesting changes currently taking place. As long as these companies continue to grow at a double-digit rates, it may be an attractive sector to examine more closely.


An Interesting Sector for Value Investors in 2015

January 7, 2015

2014 is over and the stock market did well for the third year in a row. The market was up 16% in 2012, 32.39% in 2013, and 13.69% in 2014 (including dividends). In other words the S&P 500 is up 62% since 2012. This is an impressive comeback after the -37% drop of 2008. Unfortunately, […]

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Oil prices, the challenge for many economies in 2015

December 4, 2014

2014 is coming to an end, and if anything is becoming crystal clear at the end of this year it is that economies around the world are deeply and intrinsically linked. Since June a roller coaster of events has pushed up the price of the Dollar in Russia by 38%. This is the biggest increase […]

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Why I increased my investment in Energy?

November 7, 2014

While there has been a lot of talk these days about the energy prices, specifically about oil and gas prices, two of my largest holdings are in this sector (Ecopetrol EC and Lukoil LUKOY). In October, I increased my position in Ecopetrol, so the question is why? In order to explain why, first we need […]

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The legacy of Larry Ellison at Oracle

October 9, 2014

Larry Ellison will be remembered for founding one of the most successful companies of our times. Only time will tell if he will also be remembered as king of the acquisition. Ellison, of course, was a specialist in product engineering, but he was also an excellent salesperson to corporate clients and extremely good in analyzing […]

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