Roderick Llewellyn

Roderick Llewellyn
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  • Heisenberg principle at work in small caps and value?  [View news story]
    That's not EXACTLY what Heisenberg said. Indeed, you cannot detect either energy, location, momentum etc exactly. More precisely, it says (in one form) that the product of the uncertainty in the momentum and the uncertainty in the position must be greater than Planck's constant (divided by 2*pi). So you can crank up the measurement accuracy of one but that will invariably reduce the accuracy of measuring the other of the pair, but in any case you can never exactly measure either.

    Where this applies in the investment issue is the idea that the Uncertainty Principle is due to the act of measurement itself, and it's often initially justified that way. So as people report on an anomalously good investment or strategy, that very act affects the results.

    This is something of a misunderstanding of the physics, as it appears that Heisenberg is not merely the result of measurement but is built into the universe itself - which simply doesn't contain these pieces of information precisely, so the analogy to investment is probably not great, but you get the idea :)
    May 23, 2014. 11:48 AM | Likes Like |Link to Comment
  • Activision Blizzard: Will World Of Warcraft Lose Market Share?  [View article]
    I myself played WoW for 7 years. I've also played Aion, Tera, and I'm now playing Final Fantasy 14. I'm also an ATVI stockholder even though I'm not now playing WoW.

    The social elements are key, and I've made this point before. I've been hearing dire predictions that game X would dethrone WoW. All have failed to do so. The hype over SWTOR in Seeking Alpha was unbelievable; I'm guessing the SA authors pushing it had shorted ATVI big-time, and weren't they sorry?

    Most MMOs have better graphics than WoW. Most allow more interesting character customizations than does WoW. For example, I don't like the "football player" or "macho Marine" look of male characters on most games; Tera and FF14 allow more sensitive-looking males to be made. But that's merely my preference.

    The REAL difference between ATVI and the, let's face it, also-rans (even the ones I'm playing!) is that only ATVI has the resources to continually upgrade its game. To keep users satisfied, as users exhaust the game's content, the game's maker must essentially re-invent the game. Only ATVI has done that. To do so requires the kind of cash invested in a blockbuster movie. We're talking hundreds of millions of dollars. Like Bethesda/Zenimax can raise and spend that? Every two years? Get real.

    Most other games, once you reach max level and clear a few dungeons, devolve into PvP. In PvP, the game becomes purely an arena for inter-player combat and game content is no longer important. Typically, shortly after players reach that point, unless they're PvP freaks, they seek another game.

    These games all have similar worlds (basically swords & sorcery). Minor differences in graphics quality or on what platforms you can play will not determine the marketplace winner. Of the games I've seen, only Tera is significantly different because of its combat system (it's more like a FPS game in that dimension, rather than a "tab targeting" game); thus, Tera has won a loyal following.

    If what you're doing is basically duplicating WoW (but inevitably with a smaller world with fewer quests and dungeons because your company just doesn't have ATVI's resources), you may grab some market share, but you're not going to dethrone WoW.

    Much has also been made of the F2P phenomenon. Naturally, many players seek to pay nothing for entertainment; many young internet users in fact think they have a RIGHT to free entertainment. Of course, F2P has made an impact on WoW's market share. On the other hand, the fact that WoW has been able to maintain its pay model should be seen as a strength, not a bowing to inevitable reality. That's what provides the resources for those endless upgrades I mentioned above! The free games are basically bottom-feeding. You get what you pay for.

    Here's my prediction: In a couple years time if not sooner, I'll be commenting on yet another article about the latest "WoW-killer", and I'll refer to "Elder Scrolls" as another example of a game touted as such which hardly anybody remembers. Care to bet on it? Oh yeah, if you're investing in their vendors, you're doing just that!
    Mar 10, 2014. 01:44 PM | 2 Likes Like |Link to Comment
  • Activision Blizzard Generated 12% Return On Equity, Free Of Long-Term Debt  [View article]
    I agree with this Author's comments. As far as the MMO world is concerned, I think a major change is towards shorter runs with more story... thus I'm playing Final Fantasy XIV right now (I've stopped playing WoW after 6 or so years, but I'm still an ATVI shareholder!) - because WoW got repetitive, and I was seeking more story. Just like a book or a movie, or even a TV series, eventually you run out of story. I don't think we'll see any 7-year MMO runs anymore. This will hurt ATVI, but it also means nobody else will be coming up with such either.

    I think the influence of mobile is exaggerated. It's true that it's big, and if you're on the subway, it's the way to go - I'm not hauling my 30-inch monitor on the underground, lol. As others including the Author have pointed out, the action is different. Another critical factor is that most mobile users don't intend to pay anything to play. The opportunities in F2P by selling mounts, pets, clothing, etc I think are really limited and are basically bottom-feeding. A modern MMO is extraordinarily expensive to develop and operate, akin to a blockbuster movie. That's the moat right there. While companies are introducing MMOs (and non MMO games) all the time, they are mostly doing so on investor capital. Most of these firms will fail. Investor willingness to fund new games will dwindle as it's realized that there aren't really that many good opportunities out there - to be successful, you have to be VERY successful, and that's really hard and a priori unlikely.

    Another critical issue is that people make friends in MMOs and want to continue playing with them. This provides something of a moat as players are often reluctant to move to a new game as it usually means abandoning old friends and trying to find a new "guild" (in-game friends who adventure together). I've found this is actually challenging. Not infrequently, one might find oneself in a guild in a new game but after a couple months realize it's not the right group of people. These MMOs should not really be viewed as "games" so much as social networks with shared activities (questing, killing monsters, etc).

    I suspect what will evolve is a roll-up strategy in which access to all available MMOs is buyable from a single source. Since you can only play so many hours per day no matter how many games you have, I don't want to pay many subscription fees to play many games. There may be opportunities for a third-party broker to re-sell access to each game, compensating the game's operator by hours played in that game, or something like that.

    While I enjoy the "dungeons and dragons" genre that almost all of these games feature, I would admit that perhaps the market can be expanded by moving beyond that genre. For example, one game, "The Secret World", attempts to do that by setting it in the modern world; but I haven't played it so I can't comment on how compelling it really is. I've long suspected that the average person out there, if asked what their dream world might be, would answer "I'd like the world to be EXACTLY like it is now, if only because I have no imagination and no patience for fantasy, except for one thing - MY position is better. In my dreams, I'm a DOCTOR!" - or whatever. I can tell you when I bring up my MMO playing to my real life friends, there is immediate huge impatience and often significant hostility, and at least part of that is most people do not like fantasy or science-fiction, the basis of most of these games.
    Sep 11, 2013. 02:12 PM | 1 Like Like |Link to Comment
  • The Biggest Threat To Activsion Blizzard  [View article]
    I don't believe F2P is a threat to ATVI, although it may reduce revenues some (I suppose you could call that a threat). They can play that game too. Really, F2P is a sign of weakness; it means you cannot get people to pay for it. Now, EnMasse's fantastic "Tera" game was not F2P and was struggling. By going F2P, but giving significant advantages to pay players, it rapidly built up player base.

    F2P does not lower barrier to entry, in fact it increases it, as the company must have significant resources to operate a game yet collect little for it until players just must have that mount or whatever that they get if they pay. Rather, it reduces the barrier for the individual player to try the game. They are two different types of barriers!

    I believe the true threat is a fundamental change in how people want to play MMOs. Gone are the days of people's being willing to hang on in one game for 7 years a la "WoW" (I did!) People want more story now. Square Enix's fantastic "Final Fantasy XIV" has an amazing story line. So MMOs will become more like books or movies: eventually you've done the story, even if it has many sequels, and you're ready to move on. What this implies is that a company cannot invest endless resources in any one game, as it will not last; perhaps in the new world 2 to 3 years is all that an MMO will endure. This hurts larger companies like ATVI more, as their structure is more oriented towards one huge MMO; will they be nimble enough to introduce games with more limited lifespans and more exciting stories?
    Sep 4, 2013. 12:11 PM | 2 Likes Like |Link to Comment
  • Misunderstood And Underpriced: NorthStar Realty Finance Is Poised For Outperformance  [View article]
    I too thought that "manufactured homes" refers to thin-walled "trailers" populated by liquored-up losers, with half-naked kids running around amidst gunfire. Then, a couple family members just purchased such homes, they are almost like typical suburban homes. The park where they're located is in a fairly high-class area of So. California, restricted to those over 55. Ownership is required; you cannot rent out these homes. There are no visible derelicts, bottles, trash, kids.

    In a sense, these parks are the lost villages - lost to modern automobilia and suburbia - yet encapsulated within suburbia. The people are not low-class. They do this thing called "walking" and actually meet their neighbors and help them out. What's eliminated from suburbia in these parks is the waste of personal backyards, fences, swimming pools, garages, and wide roads. My relations' park has a communal swimming pool, rec room, etc. How efficient!

    As far as the legal arrangement is concerned, the residents own the homes (buildings) but not the land on which they sit. They pay rent to the land owner, which is how the park earns money. Most of these buildings are never going anywhere - one look at them would convince you of that. They typically make one trip: from the manufacturer to their eventual and final destination. You would virtually have to close a freeway or use a railway to move these structures, particularly of the "double-wide" or "triple-wide" variety. Again, these have nothing to do with "trailers" and "RVs". I suspect the TV media deliberately confuses these because they want to keep Americans frightened of a life-style alternative that consumes fewer resources but may in fact be superior.

    I think these parks may be good investments. They may well represent the future, as the basic suburban "big box" model is collapsing, is of low interest to young people, isn't environmentally sustainable, yet is superior to living in huge apartment buildings.

    Disclosure: I'm long NRF.
    Jun 26, 2013. 01:04 PM | 8 Likes Like |Link to Comment
  • It May Be Time To Take A Ride On These 2 Rails  [View article]
    Obviously coal has environmental problems, but so do oil and natural gas, although the former is nearly all carbon and the others at least contain some hydrogen :)

    Nevertheless, I don't think we'll just allow that coal to sit there. There is money to be made and it will be made. I suspect that as oil declines in availability and increases in cost, we'll see more projects to use coal as a chemical feedstock. By the way, most people would not define "alternative energy" as including oil and natural gas, but of course you're free to define those words as you please. Most would lump all those sources as "fossil fuels" and reserve alternative energy to refer to diffuse sources like solar, wind, tides, geothermal, etc.
    Apr 2, 2013. 11:15 AM | 3 Likes Like |Link to Comment
  • Why Transportation ETFs Should Be A Core Portfolio Holding  [View article]
    I'm also long the rails individually - I've been a fan of railroading for decades before it became hot - and I have the transport index fund - and I am long-term bearish on airlines too. Due to the inherent physics of air flight and of aircraft themselves, planes must rely on high-energy-density fuels... which means heavy dependence on petroleum. They're not going to be running on electricity, uranium (though that's VERY high energy density!), used cooking oil, hydrogen, garbage, solar panels, or any of the other technological nostrums widely touted to keep America in automobile dependency. In other words, as energy becomes more expensive, the airlines will suck big-time. Meanwhile, the rails will look better and better. Naturally, I could be wrong: maybe zero-point energy or antimatter is right around the corner. I wouldn't bet my portfolio on new physics, however. Especially if you don't understand the physics and you're just being religious that "science will always find a way."

    Meanwhile, of course, the airlines have one major strength, despite the author's (probably true) statement that they don't produce good returns for investors. Namely, whenever something bad happens to them, which is frequent, they run to Washington for handouts to maintain that "capitalist" industry, and they usually get them (do some research as to what happened after 9/11 and you'll see what I mean). This contrasts to the "socialist" railroads that never seem to need a darn thing from the government... unlike not only airlines, but trucks and cars and ships all of whose infrastructure is insanely subsidized by the taxpayer. It's fair to say that without those subsidies, the modern world would look quite different: trucks, cars, and planes would exist but have a much smaller role, and railroads would have a 90% mode share.
    Mar 25, 2013. 11:58 AM | 2 Likes Like |Link to Comment
  • Activision Blizzard's Giant Leap: Is It Game Over?  [View article]
    One of the true mysteries of investment - perhaps the greatest mystery - is that examined by this Author, namely, when to sell. Jesse Livermore (of "Reminiscences of a Stock Operator" fame) says that many investors make the mistake of selling as soon as a small run-up occurs, fearing losing their profit. Here's the problem with selling on small run-ups: what do you do when you have a small LOSS in a stock? Do you sell? In that case, likely your gains will be balanced by your losses, less transaction friction, as small movements are effectively random noise; it's as likely that any stock you pick will go down by 20% as up by 20%. Or, do you hold on as the stock declines, hoping for a reverse? In that case, your portfolio will be full of dead wood, as you've sold all your winners before they became BIG winners, and kept your losses. This by the way is the problem with covered option writing - it's not "safe" as many say, as you will make very little money on gains (having sold your upside) but you will definitely lose plenty money on losses, only moderated by your received options premiums. Anyway, I've certainly been guilty of holding on to gains too long. An example: years ago I used Borland (remember them?) products, I liked them, so I bought in at $12. Six months later, it was $80 or so and I foolishly did not sell. Surely sextupling my money should have been good enough, no? I rode the train back down the mountain until the recent merger, clearing maybe $1 per share.

    Given that it's very unlikely that even a really smart investor is significantly better at picking winners than random choice, it seems like you must limit losses to prevent the dead-wood problem. An investment professor I had recommended a 30% stop loss (also updated to recent highs - this helps lock in gains, at least those over 30%). If you do that, it seems like to earn money, based on the principles I mention above, you must gain more than 30% on your winners before you sell.

    About six months ago, I was concerned about Vivendi's possible move to unload their ATVI holding. I figured that if that materialized, the stock might plummet, so I protected my long position by buying six month 10-strike puts; they were very cheap, like 26 cents per share or so. I lost it of course, but I did sleep better at night :) Generally, I've found that put protection is too expensive and significantly impacts portfolio return (no surprise there) - but here I was worried about a catastrophic loss. It's like the difference between high- and low-deductible insurance. Somebody has to pay for all those big buildings in Hartford, and if you insist on little loss thru put hedges, you will pay all your gains (when you make them!) in your insurance.

    Good article, very thoughtful, and unlike certain authors who write about ATVI, you weren't clearly just talking stock down after opening a short position, or like some who are clearly grouches about ATVI's dominant gaming position (kind of like the people who hate Microsoft because it's dominant - and please don't pile on me giving me a million other reasons for hating them, I know them all and I'm a software developer in a Microsoft-using shop lol)... or some who just like other games better (of course, those other games don't seem to earn any actual, you know, returns for shareholders! But they're way cool!)
    Feb 19, 2013. 04:25 PM | 3 Likes Like |Link to Comment
  • Look Out Below, Activision Blizzard: Finally A True WOW Killer  [View article]
    I'm curious, SJ, since we had our discussion about WoW vs GW2 and how GW2 was an automobile compared to WoW's horse-and-buggy and all. How's the car doing in killing off the buggy? How are their profits? I really don't know as I haven't found good numbers yet. Since you were touting them, you probably know.
    Feb 12, 2013. 01:05 PM | Likes Like |Link to Comment
  • Microsoft And The Infinite Monkey Theorem Of R&D Spending  [View article]
    Vince: consider though that all "innovations" are based on prior work, back to I suppose the first stone tool. AAPL has great consumer penetration but almost no footprint in business. I mention AAPL largely because so many compare the two organizations, but they are in fairly different markets. Also, as far as Windows and Windows-like systems are concerned, AAPL didn't invent that either; they got it from Xerox (I know because I worked for Xerox at that time. AAPL didn't even exist). It becomes a matter of opinion when a new product is truly innovative. I don't disagree with you that MSFT is not a great innovator, however.
    Feb 7, 2013. 04:15 PM | 2 Likes Like |Link to Comment
  • Microsoft And The Infinite Monkey Theorem Of R&D Spending  [View article]
    I like your infinite monkey metaphor. By the way, even ONE monkey over an infinite amount of time will produce all possible works (of finite size). Similarly, an infinite number of monkeys will produce all possible finite-sized works of less than size L within L keystrokes (since one of the monkeys will surely start on any such work immediately), thus, you don't need to wait an infinite amount of time to get your Shakespeare. Note, however, that even an infinite set of monkeys over infinite time will not produce all INFINITE sized works (this can be proved via diagonalization, and was the basis of Georg Cantor's discovery that there are different orders of infinity).... lol... just offered for your amusement
    Feb 7, 2013. 01:57 PM | 2 Likes Like |Link to Comment
  • Dow 14,000: Are You The Sucker?  [View article]
    But how much worse off will you be if there IS hyperinflation and you aren't in stocks?
    Feb 6, 2013. 01:10 PM | Likes Like |Link to Comment
  • Netflix: I Am Truly Living In A World I Don't Understand  [View article]
    I'm not convinced that a society like the US cannot eternally increase its debt - as long as the rate of increase is limited.

    There is of course an obvious scenario in which this is not possible: one in which economic growth itself essentially ceases due to resource constraints, all the easy things having been done, environmental degradation, etc. Almost all investment is based on the concept of eternal economic growth. If that is possible (obviously not based on physics, but we can argue endlessly as to when such a limit would occur), then eternally growing debt is just as sustainable, as long as the average growth in the debt is smaller than the average growth in the economy. Both are equally real and equally preposterous - you cannot assert one position without asserting the other.
    Jan 31, 2013. 11:09 AM | Likes Like |Link to Comment
  • Sense And Nonsense About Climate Change. What Do Investors Need To Know?  [View article]
    Nothing wrong with challenging "established" points of view; that often leads to progress. Nevertheless, the many deniers and science-doubters who seem to think their feeble and largely selfish objections overrule the overwhelming judgement of science, don't seem to doubt quantum physics. They don't scoff at airplane flight and suggest substituting their own designs. They don't doubt electromagnetic theory as they use their computers and cell-phones. These same people who use the products of science every minute of their lives suddenly find vast dark conspiracies, accusing scientists of fattening their wallets through government grants awarded only on the basis of political correctness rather than likely validity of research. Let's challenge these people who think they know more than these modestly-paid scientists working at largely thankless jobs do, to actually invent something useful or discover something new. Let them yakk on cell phones they made themselves. Let them design their own planes and fly in them.
    Jan 27, 2013. 01:11 PM | Likes Like |Link to Comment
  • Activision's 'World Of Warcraft' - A Theoretical Exercise  [View article]
    Basically, you'll see a bifurcation in the market. Some players are willing to spend $13/mo (6 month contract) to play WoW - they get the advantage of all those developer dollars spent by Blizz on their behalf that Heartman quotes. Others are cheap and don't believe they should have to spend a dime on anything. The latter group will flit from game to game on their cell phones and facebook. The premium gamers will stick with WoW. What other gaming companies haven't been able to do is peel any significant number of premium gamers from WoW. Every few months it seems there is another game touted, often on SA, as the WoW killer, e.g., SWTOR, Rift, Guild Wars, LOTR, Warhammer, Conan, etc. None have produced any revenue to speak of. If you can't spend those development dollars, you aren't going to make a premium world, so you aren't going to attract premium players. It's as simple as that. The facebook/F2P games aren't even in the same league, those are more for spending time when you're riding the subway than for serious time wastage lol.

    What Blizz will undoubtedly do is turn WoW into a kind of universal portal for many games. They made a fitful start in the "Mists of Pandaria" expansion by including a farming element like "Farmville", but they will surely go further. After all, I might like to play more than 1 game, but I only have so many hours per week I want to play across all games, and I don't want to pay one fee per game. That inevitably will lead to a kind of gaming consolidation, enabling a "roll-up" strategy where you pay one fee for unlimited play across a whole suite of games.
    Jan 14, 2013. 11:19 AM | 1 Like Like |Link to Comment