Author Topic: BAM - Brookfield Asset Management  (Read 336797 times)

Spekulatius

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Re: BAM - Brookfield Asset Management
« Reply #600 on: September 08, 2018, 03:06:58 PM »
Google just published this talk by the CEO: Bruce J. Flatt "Durable Principles for Real Asset Investing" | Talks at Google

Pretty amazing talk. To extend on what Flatt has talked about, I think ENB fits many of the same narratives (durable/ irreplaceable assets with a cash yield, NG revolution). Its one of my major positions in my “yield” bucket.

It’s also worthwhile to note that their investment thesis hinges upon bond yields staying comparatively low. I think this is important to keep in mind.
« Last Edit: September 09, 2018, 07:43:27 PM by Spekulatius »
To be a realist, one has to believe in miracles.


chrispy

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Re: BAM - Brookfield Asset Management
« Reply #601 on: September 09, 2018, 12:51:11 PM »
As operators go, I think I'd put Flatt second to only Buffett'

Flatt is likely a BETTER operator then Buffett.  Either way - one of the best public CEOs out there.  Would be interesting to see how many CEO's have $1bn of common stock exposure like Flatt does...I am sure a lot of Tech...but outside of that???

Just as a discussion point; if we think he is one of the best allocators/operators, has all of his networth in the company then shouldn't others feel ok doing it too?

 I agree that during the next downturn the price will drop more significantly then most other businesses. Buf, they will continue to earn and acquire numerous distressed assets.

Ahab

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Re: BAM - Brookfield Asset Management
« Reply #602 on: September 09, 2018, 02:10:29 PM »
In the spirit of trying to avoid unforced errors, I try to remind myself to keep at least 7 or 8 holdings. Too much concentration risk when putting your entire net worth into one security IMO. An outsized bet of 20% or 30% in a business you know really well is another story. There are good arguments that BAM fits the bill as a high-quality compounder.
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Cigarbutt

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Re: BAM - Brookfield Asset Management
« Reply #603 on: September 09, 2018, 02:32:26 PM »
In the spirit of trying to avoid unforced errors, I try to remind myself to keep at least 7 or 8 holdings. Too much concentration risk when putting your entire net worth into one security IMO. An outsized bet of 20% or 30% in a business you know really well is another story. There are good arguments that BAM fits the bill as a high-quality compounder.
I like BAM too and have also seen it as a potential long-term compounder.
Could you elaborate on the "good arguments"?
and
Could you share (that's the part I'm working on now) the factors that will allow them to survive and even thrive through the next inevitable (although impossible to predict when) downside of the cycle?

Uccmal

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Re: BAM - Brookfield Asset Management
« Reply #604 on: September 09, 2018, 04:00:03 PM »
In the spirit of trying to avoid unforced errors, I try to remind myself to keep at least 7 or 8 holdings. Too much concentration risk when putting your entire net worth into one security IMO. An outsized bet of 20% or 30% in a business you know really well is another story. There are good arguments that BAM fits the bill as a high-quality compounder.

Smart.  I have seen people blow up completely from analyzing (guessing?) wrong.  One took all his "winnings" from FFH and put them into Research in Motion just as Apple came out with the IPAD. 

It was a good video.  Bruce Flatt is impressive to say the least.  But we never totally know what is going on.  Everytime I think of putting 100% into something I think of Jared the subway guy, or Bill Crosby, or Elliot Spitzer, or Hank Greenberg (not even anything wrong on his part). In this day and age even unproven allegations can take someone down enough to wipe out an investment for the passive investor. 

Tesla is showing the problems when a company is too reliant on one person.  I dont think this is the case with BAM but if the CEO were to have a meltdown the stock would get killed, at least for awhile.  That being said BAM is internally diversified with a few extremely capable management teams. 

GARP tending toward value

mcliu

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Re: BAM - Brookfield Asset Management
« Reply #605 on: September 09, 2018, 04:33:01 PM »
BAM has obviously been a very astute investor, but I wonder how much of their returns has been a result of the decline in interest rates (credit super cycle?) and corresponding increase in the prices of these long-duration real assets..?
I also wonder how these assets will perform in a long period of rising interest rates..?
Would love to hear your thoughts.

Ahab

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Re: BAM - Brookfield Asset Management
« Reply #606 on: September 09, 2018, 05:09:40 PM »
@Cigarbutt
I like to look for companies that I feel are 'elite' in their areas of focus. Monitoring business news, I'm always struck by how Brookfield is involved in so many restructuring deals involving real assets. The company seems to have a knack for buying coal and turning it into diamonds, rinse and repeat. Its performance record over the last 20 years has been incredibly impressive (high teens over 1997-2017). That being said, I agree that there are some very real risks in a downturn (that would be hopefully offset by skilled management). The upside of tougher times for BAM is the ability to buy assets for a song in an environment of business failure and forced selling. Here, I'm reminded by what Bruce Flatt said at a conference during the financial crisis about the previous speaker's gloomy predictions being valid for the next few months while his outlook was relevant to emerging trends over the next few decades.

@Uccmal
I think you highlight some really good cases of individuals the public believed to be above board, even admirable until scandalous/immoral things were revealed about them. Not too worried about key man risk with Flatt, but having him behind the reins is clearly a fantastic tailwind for BAM.

@mcliu
That's an important question. I'm optimistic that the values of the real assets that BAM manages (including a solid portion of the Manhattan skyline) will benefit greatly from the continued growth of the global economy even in a much higher rate environment. I'd love to hear your and others thoughts about the sensitivity of BAM's operating performance to rising interest rates.
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Cigarbutt

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Re: BAM - Brookfield Asset Management
« Reply #607 on: September 09, 2018, 05:43:19 PM »
@Cigarbutt
I like to look for companies that I feel are 'elite' in their areas of focus. Monitoring business news, I'm always struck by how Brookfield is involved in so many restructuring deals involving real assets. The company seems to have a knack for buying coal and turning it into diamonds, rinse and repeat. Its performance record over the last 20 years has been incredibly impressive (high teens over 1997-2017). That being said, I agree that there are some very real risks in a downturn (that would be hopefully offset by skilled management). The upside of tougher times for BAM is the ability to buy assets for a song in an environment of business failure and forced selling. Here, I'm reminded by what Bruce Flatt said at a conference during the financial crisis about the previous speaker's gloomy predictions being valid for the next few months while his outlook was relevant to emerging trends over the next few decades.

@mcliu
"BAM has obviously been a very astute investor, but I wonder how much of their returns has been a result of the decline in interest rates (credit super cycle?) and corresponding increase in the prices of these long-duration real assets..?
I also wonder how these assets will perform in a long period of rising interest rates..?"

---)

That's an important question. I'm optimistic that the values of the real assets that BAM manages (including a solid portion of the Manhattan skyline) will benefit greatly from the continued growth of the global economy even in a much higher rate environment. I'd love to hear your and others thoughts about the sensitivity of BAM's operating performance to rising interest rates.

@Ahab
Good points. Future events are likely to be different from past events but interesting to remember that BAM was able to raise significant capital during 2008 and 2009. Probably useful to run some "stress" tests. This is just opinion on my part and it may take a while but I think that the value of "real" assets will tend to do relatively well over the long term.

@mcliu
If you're in this for the long term and are worried about inflation, the volatility or downward pressure on asset valuation should not disturb you because the business is characterized by long term cash flows with embedded indexing provisions and inflation should not preclude management from buying undervalued real assets.

If your worry is inflation and if you agree with the principles laid out by Mr. Buffett in his "How inflation swindles the investor" article, you may need to take into account that the value taken away by inflation would be inversely proportional to the inflation protection that the security provides. In addition, Mr. Flatt and the BAM people are savvy capital allocators and, in an inflationary environment, they could possibly lock in long-term debt with fixed interest rates which would mitigate the inflation cheat.

However, in the same vein, higher inflation may diminish the relative attractiveness of BAM's returns because institutional investors looking for alternative investments may find that the return differential to be not large enough for the "risk" considered. So, they may handle less fee-bearing capital.

Don't want to turn this into a macro discussion and, at this point, this is pretty contrarian but, if you are running various scenarios, the effect of unexpected deflation should be considered.
« Last Edit: September 09, 2018, 05:44:58 PM by Cigarbutt »

bizaro86

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Re: BAM - Brookfield Asset Management
« Reply #608 on: September 09, 2018, 06:44:20 PM »
My thought is that higher interest rates are likely to be a consequence of d continued strong economic growth and/or increased inflation. I think Brookfield assets are of better than average quality, and so are likely to disproportionately benefit from economic growth.

As to the argument about Bruce Flatt having a big percentage of his net worth in BAM, that's a good sign but not conclusive, imo. If I lost 80% of my net worth, it would affect my life dramatically. If that happened to Bruce Flatt, he'd still be excessively rich.

Spekulatius

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Re: BAM - Brookfield Asset Management
« Reply #609 on: September 09, 2018, 07:46:55 PM »
My thought is that higher interest rates are likely to be a consequence of d continued strong economic growth and/or increased inflation. I think Brookfield assets are of better than average quality, and so are likely to disproportionately benefit from economic growth.

As to the argument about Bruce Flatt having a big percentage of his net worth in BAM, that's a good sign but not conclusive, imo. If I lost 80% of my net worth, it would affect my life dramatically. If that happened to Bruce Flatt, he'd still be excessively rich.

Flatt stated it himself that they are working opunder the assumption that interest rates stay reasonably low, so I would take it from the horses mouth that it is necessary condition for them to do well. Certainly rising interest rates or even worse rising spreads canít be good for an asset  management business that needs access to debt and equity markets for new deals.
To be a realist, one has to believe in miracles.