rob zdravevski's blog

Aquaculture – An alternative to feeding the world

On a recent plane trip, I was seated next to a veterinary undergraduate student named John.

On the flight, John was consumed with specific reading about the feed to protein conversion ratio of fish, when compared to other sources of animal protein.

He explained to me the science behind how many kilograms of grain or feed an animal needs to consume in order to convert it into a kilogram of live weight or protein flesh.

The feed conversion ratio (FCR) is a measure of an animals efficiency in converting feed mass into increased body mass.

Sheep and cattle require 7kg-8kg of feed to put on 1kg of live weight. Pigs have an FCR of 3.5. Poultry has an average FCR of 3 while Atlantic Salmon is 1.2 and other mass farmed fish such as Tilapia is around 1.7.

Currently, there are a few listed fish farming businesses around the world with the Nordic countries leading the way.

The agriculture theme ranges far and wide but it seems that aquaculture fades into the background. We all can understand the food supply and demand story coupled with yearning for protein as developing countries become richer. I am interested in exploring a cost effective, low cost method of producing protein sources other than soy, not to mention the Omega-3 health benefits.

Inefficient markets offering opportunity in gold equities?

Currently, it seems investors are “throwing away” their shares of selected gold “explorers”, without any consideration that perhaps owning the equity in these companies, when considering the value of their reserves of gold (accounting for various costs) is cheaper than buying bullion itself.

When owning equity in gold companies, I understand there are pro’s and con’s of operational leverage versus failure and the results of decisions made by management, however it’s often advisable for a junior explorer to leave the gold in the ground rather than spend money to become a “producer”, in order to “extract” the value.

The world wants a lower AUD before buying up Australia

In Australian equities, the occurrence of planned joint ventures, mergers and takeovers being re-considered or aborted and profit downgrades by companies and analysts are increasingly being associated with the strength in the Australian Dollar.

The opportunity will lie when and as these equity prices fall coupled with a correction in the AUD, that then, on a global basis, Australian equities and other assets will be “on sale”.

Accepting a loss is tough

A prospective client once asked me if I had lost money while investing or trading?. The answer is an obvious “yes”.

I have learnt that the greatest of investors and traders spend proportionately more time understanding the risk to their money versus amount they will make.

If their view about an investment changes, they easily cut their loss or reduce their exposure. They don’t feel that an asset “owes” them a certain price; let alone an obligation or privilege to “break-even”.

They don’t have an aversion to taking a loss.

Whether it’s a bad investment or a romantic relationship that didn’t spark, accepting the loss is an important step to take before “moving on”.

Observing extremes

It seems that commodity prices, currencies and certain assets can only move in the existing “straight line”, or so the herd believes.

There is probably merit in developing some well founded contrarian views.

I am hearing that “this time it’s different” but all I can say is that assets that are cyclical, are always cyclical.

Some short-term trends have swung

S&P lowers U.S. government long-term credit rating to negative and the US Dollar rallies….

Not all market reactions seem logical.

US Dollar Index, Euro, VIX, S&P 500, Copper, US Transports, Nasdaq, CRB Index & Philly Gold/Silver Index – have all reversed their recent short-term trends.

Existing trends in spot Gold, Silver & Oil are still intact.

Who wants to be a crop farmer?

Not many young folks want to be farmers, especially wheat farmers.

Although susceptible to the ebbs and flows of markets, livestock and grain prices have been rising lately and the positive case (especially for soft commodities) remains intact with the simple understanding that food demand is rising while supply flounders.

There is another supply and demand story – the world is not producing as many farmers as it once did, yet we probably need more farmers than ever before. Kids don’t grow up wishing to herd cattle or harvest fields.

Instead of opening a retail shop, paying $100,000 of rent, hiring 4 staff members, spending money on branding and websites and then buying $40,000 of inventory (I hope it’s not perishable) and try to sell your wares amongst the competition of the other 40 shops on your strip – For a similar amount, you could buy seed, fertiliser, lease a 3,000 acre (avg. plot is about 20,000 acres) wheat farm and some equipment and reap larger margins!!

If your average yield is 1.3 tons of wheat per acre, you reap 4,000 tons of wheat from your farm – selling price is $330 per ton less sowing, harvesting and labour costs of $180 per ton = $150 * 4,000 tons = $600,000.

There is always a market for your product or alternatively you can hedge your crop with a future delivery contract or store it in a silo to be sold at a later date.

Unlike ugg boots, stretch jeans or the Collingwood Football Club – Wheat never goes out of style.

Ya gotta know how to tax ’em

I have attached a link to an interesting editorial from the Weekend Australian.

http://www.theaustralian.com.au/national-affairs/commentary/its-madness-to-sacrifice-ourselves-for-nothing/story-e6frgd0x-1226036215554

Cost ! It all comes down to cost.

It’s a bit rich for western countries to criticise the newly industrialised nations of China and India for their carbon dioxide emissions, for the West has been a dirty polluter for over a 120 years.

These guys have only got going in the past 20 years and we’re crying foul. As they modernise, their huge populations won’t help how their viewed as their per capita usage will also increase.

To reduce emissions, perhaps western leaders should refrain from courting China and India’s consumers and government’s from buying their country’s exports?

I believe many folks support renewable energies and I think this theme has longevity but it all comes down to cost. It needs to be cheap enough for all of us to install solar panels on our rooftops.

Like it or not, in many economies, coal is “it” for mainstream power generation. It is plentiful and cheap. It’s that simple. In previous posts I have discussed the importance of being a low-cost producer.

When making investment decisions, simplicity and fact weighs more than hope, subsidies and policy from governments (barely clinching to power) who are focused on the next election cycle.

Government likes an industry that it knows how to tax. Government knows how to tax alcohol, tobacco, petroleum, financial services, real estate transactions, minerals and commodities.

I haven’t seen any government endorsing, let alone subsidising, the proliferation of the electric car, because they don’t know how to tax the electricity being used to recharge the car while parked in a garage.

So when governments figure out how to tax the sun, wind and water, there will be increased hope for the renewable energy industry.

The growing merits of private equity – Part 1

Private Equity is getting a bad rap again with the recent demise of some fashion and book retailers, while reports quoted representatives blaming every aspect from online shopping to slack consumer demand.

Every excuse was cited other than these buyers paying too much for the asset or using too much debt or leverage.

I hope this doesn’t taint the image of private equity, as investing in this asset class is more common than many realise. There are thousands of owners of private equity around the world. They are found amongst those who own the equity in the businesses that operate in our communities and cities ranging from the corner store, landscape gardener to the family run chocolate factory.

There are obvious differences between private and public equity. Whether it’s the liquidity of its shares, transparency of the accounts and valuations or accountability of strategy and management; which is typically reflected in the price paid for the business or asset.

I like the fact that these owners (who are often majority shareholders) can ignore the quarterly and half-yearly news, analyst, investor and time cycle.

What a brilliant concept!! Actually being able to run and operate a business with a longer term view and not have to pamper to the whim and scrutiny of thousands of shareholders or broking firm analysts.

I think that there are too many companies (especially) on the Australian Stock Exchange that shouldn’t be publicly listed.

The motivations for a public listing can vary from providing an interim liquidity win for founding shareholders, seeking more and new equity capital or a result of lending conditions not allowing them to obtain normal bank financing.

I would like to think that the failed efforts of some private equity groups doesn’t ruin the landscape for  smaller businesses who require various sources of capital and financing.

Australia needs significantly lower company taxes

Image by .nele via Flickr

I’m hoping to re-read the books that I have in my library written by Clayton Christensen.